Is Grand Canyon Education Inc (LOPE) A Good Stock To Buy?

We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards Grand Canyon Education Inc (NASDAQ:LOPE), and what that likely means for the prospects of the company and its stock.

Hedge fund interest in Grand Canyon Education Inc (NASDAQ:LOPE) shares was flat at the end of last quarter, with 19 hedge funds bullish on the company. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Rowan Companies PLC (NYSE:RDC), Masonite International Corp (NYSE:DOOR), and CVB Financial Corp. (NASDAQ:CVBF) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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What does the smart money think about Grand Canyon Education Inc (NASDAQ:LOPE)?

Heading into the fourth quarter of 2016, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in LOPE at the beginning of this year. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Renaissance Technologies, one of the largest hedge funds in the world, holds the number one position in Grand Canyon Education Inc (NASDAQ:LOPE). According to regulatory filings, the fund has a $40.5 million position in the stock. On Renaissance Technologies’ heels is Peter S. Park of Park West Asset Management, with a $29.4 million position; 2.7% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions include Joseph A. Jolson’s Harvest Capital Strategies, Brian C. Freckmann’s Lyon Street Capital and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Judging by the fact that Grand Canyon Education Inc (NASDAQ:LOPE) has encountered no change in interest from the entirety of the hedge funds we track, we look out for funds that slashed their full holdings by the end of the third quarter. Interestingly, Joel Greenblatt’s Gotham Asset Management cashed in the largest investment of all the investors monitored by Insider Monkey, comprising close to $0.7 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund cut about $0.6 million worth of LOPE shares.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Grand Canyon Education Inc (NASDAQ:LOPE) but similarly valued. We will take a look at Rowan Companies PLC (NYSE:RDC), Masonite International Corp (NYSE:DOOR), CVB Financial Corp. (NASDAQ:CVBF), and Old National Bancorp (NYSE:ONB). This group of stocks’ market valuations resemble LOPE’s market valuation.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $196 million. That figure was $133 million in LOPE’s case. Rowan Companies PLC (NYSE:RDC) is the most popular stock in this table. On the other hand CVB Financial Corp. (NASDAQ:CVBF) is the least popular one with only 7 bullish hedge fund positions. Grand Canyon Education Inc (NASDAQ:LOPE) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard RDC might be a better candidate to consider taking a long position in.

Disclosure: None