Is LMI Aerospace, Inc. (LMIA) Going to Burn These Hedge Funds?

Is LMI Aerospace, Inc. (NASDAQ:LMIA) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before doing days of research on it. Given their 2 and 20 payment structure, hedge funds have more resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is LMI Aerospace, Inc. a buy right now? The smart money is becoming less confident. The number of bullish hedge fund positions retreated by 1 lately. At the end of this article we will also compare LMIA to other stocks including Abraxas Petroleum Corp. (NASDAQ:AXAS), Pioneer Energy Services Corp (NYSE:PES), and Dynamic Materials Corporation (NASDAQ:BOOM) to get a better sense of its popularity.

According to most shareholders, hedge funds are perceived as slow, outdated investment tools of years past. While there are greater than 8000 funds trading today, our researchers hone in on the aristocrats of this group, about 700 funds. These investment experts preside over the bulk of the hedge fund industry’s total asset base, and by shadowing their first-class investments, Insider Monkey has found many investment strategies that have historically outstripped the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy defeated the S&P 500 index by 12 percentage points annually for a decade in their back tests.

With all of this in mind, we’re going to take a glance at the latest action encompassing LMI Aerospace, Inc. (NASDAQ:LMIA).

Hedge fund activity in LMI Aerospace, Inc. (NASDAQ:LMIA)

At Q3’s end, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a slide of 13% from one quarter earlier. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chuck Royce’s Royce & Associates has the biggest position in LMI Aerospace, Inc. (NASDAQ:LMIA), worth close to $13 million, amounting to 0.1% of its total 13F portfolio. The second most bullish fund manager is Phill Gross and Robert Atchinson’s Adage Capital Management, with an $11.6 million position; less than 0.1% of its 13F portfolio is allocated to the company. Remaining peers that are bullish on this stock encompass Peter Schliemann’s Rutabaga Capital Management, Jim Simons’s Renaissance Technologies and Israel Englander’s Millennium Management.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: LMR Partners. 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 with LMIA, because none of the 700+ hedge funds tracked by Insider Monkey identified LMIA as a viable investment and initiated a position in the stock.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as LMI Aerospace, Inc. (NASDAQ:LMIA) but similarly valued. We will take a look at Abraxas Petroleum Corp. (NASDAQ:AXAS), Pioneer Energy Services Corp (NYSE:PES), Dynamic Materials Corporation (NASDAQ:BOOM), and AcelRx Pharmaceuticals Inc (NASDAQ:ACRX). This group of stocks’ market values are similar to LMIA’s market value.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $33 million in LMIA’s case, the highest among its peers. Pioneer Energy Services Corp (NYSE:PES) is the most popular stock in this table. On the other hand Dynamic Materials Corporation (NASDAQ:BOOM) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks LMI Aerospace, Inc. (NASDAQ:LMIA) is even less popular than BOOM. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.