Is Coupa Software Incorporated (COUP) A Good Stock To Buy?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Coupa Software Incorporated (NASDAQ:COUP) in this article.

Is COUP a good stock to buy? Coupa Software Incorporated (NASDAQ:COUP) investors should be aware of a decrease in activity from the world’s largest hedge funds lately. Coupa Software Incorporated (NASDAQ:COUP) was in 50 hedge funds’ portfolios at the end of March. The all time high for this statistic is 66. There were 62 hedge funds in our database with COUP holdings at the end of December. Our calculations also showed that COUP isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Gil Simon of SoMa Equity Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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 take a peek at the latest hedge fund action regarding Coupa Software Incorporated (NASDAQ:COUP).

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

Heading into the second quarter of 2021, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the fourth quarter of 2020. By comparison, 66 hedge funds held shares or bullish call options in COUP a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Among these funds, Lone Pine Capital held the most valuable stake in Coupa Software Incorporated (NASDAQ:COUP), which was worth $1056.6 million at the end of the fourth quarter. On the second spot was Viking Global which amassed $456.7 million worth of shares. Alkeon Capital Management, Tiger Global Management LLC, and SoMa Equity Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Center Lake Capital allocated the biggest weight to Coupa Software Incorporated (NASDAQ:COUP), around 8.09% of its 13F portfolio. SoMa Equity Partners is also relatively very bullish on the stock, setting aside 5.18 percent of its 13F equity portfolio to COUP.

Seeing as Coupa Software Incorporated (NASDAQ:COUP) has faced falling interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few funds who were dropping their positions entirely heading into Q2. At the top of the heap, James Crichton’s Hitchwood Capital Management said goodbye to the biggest stake of all the hedgies watched by Insider Monkey, totaling about $54.6 million in stock, and Jay Chen’s Himension Capital was right behind this move, as the fund said goodbye to about $53.9 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 12 funds heading into Q2.

Let’s go over hedge fund activity in other stocks similar to Coupa Software Incorporated (NASDAQ:COUP). These stocks are Darden Restaurants, Inc. (NYSE:DRI), Live Nation Entertainment, Inc. (NYSE:LYV), Conagra Brands, Inc. (NYSE:CAG), United Airlines Holdings Inc (NASDAQ:UAL), Cheniere Energy, Inc. (NYSE:LNG), Amcor plc (NYSE:AMCR), and Caesars Entertainment Inc. (NASDAQ:CZR). This group of stocks’ market caps are similar to COUP’s market cap.

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As you can see these stocks had an average of 41 hedge funds with bullish positions and the average amount invested in these stocks was $1237 million. That figure was $3702 million in COUP’s case. Caesars Entertainment Inc. (NASDAQ:CZR) is the most popular stock in this table. On the other hand Amcor plc (NYSE:AMCR) is the least popular one with only 17 bullish hedge fund positions. Coupa Software Incorporated (NASDAQ:COUP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for COUP is 43.7. 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 positive signal but 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 17.4% in 2021 through June 18th and beat the market again by 6.1 percentage points. Unfortunately COUP wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on COUP were disappointed as the stock returned -3.4% since the end of March (through 6/18) 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 many of these stocks already outperformed the market since 2019.

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