Is AYLA Stock A Buy Here?

In this article we are going to use hedge fund sentiment as a tool and determine whether Ayala Pharmaceuticals, Inc. (NASDAQ:AYLA) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is AYLA stock a buy? Hedge fund interest in Ayala Pharmaceuticals, Inc. (NASDAQ:AYLA) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that AYLA isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare AYLA to other stocks including Apollo Endosurgery, Inc. (NASDAQ:APEN), Yatra Online, Inc. (NASDAQ:YTRA), and Safeguard Scientifics, Inc (NYSE:SFE) to get a better sense of its popularity.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Michael Castor of Sio Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $28 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to analyze the new hedge fund action surrounding Ayala Pharmaceuticals, Inc. (NASDAQ:AYLA).

Do Hedge Funds Think AYLA Is A Good Stock To Buy Now?

At first quarter’s end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AYLA over the last 23 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Jeremy Green’s Redmile Group has the number one position in Ayala Pharmaceuticals, Inc. (NASDAQ:AYLA), worth close to $7.3 million, accounting for 0.1% of its total 13F portfolio. On Redmile Group’s heels is Sio Capital, managed by Michael Castor, which holds a $5.3 million position; the fund has 1.1% of its 13F portfolio invested in the stock. Other peers that hold long positions encompass James A. Silverman’s Opaleye Management, Israel Englander’s Millennium Management and . In terms of the portfolio weights assigned to each position Sio Capital allocated the biggest weight to Ayala Pharmaceuticals, Inc. (NASDAQ:AYLA), around 1.09% of its 13F portfolio. Opaleye Management is also relatively very bullish on the stock, setting aside 0.17 percent of its 13F equity portfolio to AYLA.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: ARK Investment Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Opaleye Management).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Ayala Pharmaceuticals, Inc. (NASDAQ:AYLA) but similarly valued. We will take a look at Apollo Endosurgery, Inc. (NASDAQ:APEN), Yatra Online, Inc. (NASDAQ:YTRA), Safeguard Scientifics, Inc (NYSE:SFE), Servicesource International Inc (NASDAQ:SREV), American Realty Investors, Inc. (NYSE:ARL), Synlogic, Inc. (NASDAQ:SYBX), and Malvern Bancorp, Inc. (NASDAQ:MLVF). This group of stocks’ market caps match AYLA’s market cap.

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As you can see these stocks had an average of 6.7 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $14 million in AYLA’s case. Safeguard Scientifics, Inc (NYSE:SFE) is the most popular stock in this table. On the other hand American Realty Investors, Inc. (NYSE:ARL) is the least popular one with only 1 bullish hedge fund positions. Ayala Pharmaceuticals, Inc. (NASDAQ:AYLA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AYLA is 51.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and surpassed the market again by 3.3 percentage points. Unfortunately AYLA wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); AYLA investors were disappointed as the stock returned 2.2% since the end of March (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

Disclosure: None. This article was originally published at Insider Monkey.