Is Evolution Petroleum Corporation (EPM) Going to Burn These Hedge Funds?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the third quarter we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Evolution Petroleum Corporation (NYSEMKT:EPM) to find out whether it was one of their high conviction long-term ideas.

Hedge fund interest in Evolution Petroleum Corporation (NYSEMKT:EPM) shares was flat at the end of last quarter. This is usually a negative indicator; however, it is important to consider that the shares of the petroleum company lost 15.78% value during the quarter. It might appear to be an interconnected matter, but without proper validation. We will find out more about hedge funds that held positions in Evolution Petroleum Corporation (NYSEMKT:EPM), at the end of the last quarter.

For a better understanding of the hedge fund sentiment, we will also compare Evolution Petroleum Corporation (NYSEMKT:EPM) to other stocks including MFC Industrial Ltd (NYSE:MIL), Repros Therapeutics Inc (NASDAQ:RPRX), and SeaSpine Holdings Corp (NASDAQ:SPNE) to get a better sense of its popularity.

In today’s marketplace, there are numerous tools stock traders use to value their holdings. Some of the most underrated tools are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the top hedge fund managers can outclass the market by a solid margin (see the details here).

With all of this in mind, we’re going to take a peek at the latest action regarding Evolution Petroleum Corporation (NYSEMKT:EPM).

Hedge fund activity in Evolution Petroleum Corporation (NYSEMKT:EPM)

At the end of Q3, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from the previous quarter. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Nantahala Capital Management, managed by Wilmot B. Harkey and Daniel Mack, holds the biggest position in Evolution Petroleum Corporation (NYSEMKT:EPM). Nantahala Capital Management has a $6 million position in the stock, comprising 0.8% of its 13F portfolio. Coming in second is Renaissance Technologies, holding a $2.9 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Other peers with similar optimism consist of Ken Griffin’s Citadel Investment Group, John Overdeck and David Siegel’s Two Sigma Advisors, and Matthew Hulsizer’s PEAK6 Capital Management.

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 also examine hedge fund activity in other stocks similar to Evolution Petroleum Corporation (NYSEMKT:EPM). These stocks are MFC Industrial Ltd (NYSE:MIL), Repros Therapeutics Inc (NASDAQ:RPRX), SeaSpine Holdings Corp (NASDAQ:SPNE), and Avinger Inc (NASDAQ:AVGR). All of these stocks’ market caps resemble Evolution Petroleum Corporation (NYSEMKT:EPM)’s market cap.

As you can see, these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $31 million. That figure was $10 million in Evolution Petroleum Corporation (NYSEMKT:EPM)’s case. Repros Therapeutics Inc (NASDAQ:RPRX) is the most popular stock in this table. On the other hand, MFC Industrial Ltd (NYSE:MIL) is the least popular one with only 4 bullish hedge fund positions. Evolution Petroleum Corporation (NYSEMKT:EPM) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard, Repros Therapeutics Inc (NASDAQ:RPRX) might be a better candidate to consider a long position.