Is Capitala Finance Corp (CPTA) A Good Stock To Buy?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Capitala Finance Corp (NASDAQ:CPTA).

Capitala Finance Corp (NASDAQ:CPTA) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds’ portfolios at the end of the first quarter of 2021. Our calculations also showed that CPTA 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 CPTA to other stocks including TRxADE HEALTH, Inc. (NASDAQ:MEDS), Condor Hospitality Trust, Inc. (NYSE:CDOR), and Lightbridge Corp (NASDAQ:LTBR) to get a better sense of its popularity.

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John Overdeck of Two Sigma Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $26 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. Keeping this in mind let’s review the key hedge fund action surrounding Capitala Finance Corp (NASDAQ:CPTA).

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

At Q1’s end, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 4 hedge funds with a bullish position in CPTA a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Capitala Finance Corp (NASDAQ:CPTA) was held by Two Sigma Advisors, which reported holding $0.5 million worth of stock at the end of December. It was followed by Millennium Management with a $0.2 million position. The only other hedge fund that is bullish on the company was Arrowstreet Capital.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.

Let’s now review hedge fund activity in other stocks similar to Capitala Finance Corp (NASDAQ:CPTA). These stocks are TRxADE HEALTH, Inc. (NASDAQ:MEDS), Condor Hospitality Trust, Inc. (NYSE:CDOR), Lightbridge Corp (NASDAQ:LTBR), Midatech Pharma PLC (NASDAQ:MTP), RCM Technologies, Inc. (NASDAQ:RCMT), INVO Bioscience, Inc. (NASDAQ:INVO), and Espey Manufacturing & Electronics Corp. (NYSE:ESP). All of these stocks’ market caps match CPTA’s market cap.

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As you can see these stocks had an average of 1.7 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $1 million in CPTA’s case. TRxADE HEALTH, Inc. (NASDAQ:MEDS) is the most popular stock in this table. On the other hand Lightbridge Corp (NASDAQ:LTBR) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Capitala Finance Corp (NASDAQ:CPTA) is more popular among hedge funds. Our overall hedge fund sentiment score for CPTA is 70. 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. 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 returned 17.2% in 2021 through June 11th but still managed to beat the market by 3.3 percentage points. Hedge funds were also right about betting on CPTA as the stock returned 70.7% since the end of March (through 6/11) and outperformed the market by an even larger margin. A few hedge funds were clearly right about this stock relative to other stocks with similar market capitalizations.

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