In this article we are going to use hedge fund sentiment as a tool and determine whether Matrix Service Co (NASDAQ:MTRX) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is MTRX a good stock to buy? Investors who are in the know were becoming less confident. The number of bullish hedge fund positions decreased by 1 lately. Matrix Service Co (NASDAQ:MTRX) was in 10 hedge funds’ portfolios at the end of June. The all time high for this statistic is 20. Our calculations also showed that MTRX isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 79 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.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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 we’re going to take a look at the new hedge fund action encompassing Matrix Service Co (NASDAQ:MTRX).
Do Hedge Funds Think MTRX Is A Good Stock To Buy Now?
At second quarter’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the first quarter of 2020. By comparison, 14 hedge funds held shares or bullish call options in MTRX a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Rutabaga Capital Management held the most valuable stake in Matrix Service Co (NASDAQ:MTRX), which was worth $6.8 million at the end of the second quarter. On the second spot was D E Shaw which amassed $2.3 million worth of shares. Engineers Gate Manager, Royce & Associates, and Engine Capital 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 Rutabaga Capital Management allocated the biggest weight to Matrix Service Co (NASDAQ:MTRX), around 2.96% of its 13F portfolio. Factorial Partners is also relatively very bullish on the stock, earmarking 0.14 percent of its 13F equity portfolio to MTRX.
Since Matrix Service Co (NASDAQ:MTRX) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few hedgies who sold off their positions entirely last quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital said goodbye to the biggest stake of all the hedgies watched by Insider Monkey, worth about $1.7 million in stock, and Alexis Michas and John Bartholdson’s Juniper Investment Company was right behind this move, as the fund dropped about $1.1 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 1 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Matrix Service Co (NASDAQ:MTRX) but similarly valued. We will take a look at Iteris Inc (NYSE:ITI), Smith Micro Software, Inc. (NASDAQ:SMSI), Select Bancorp, Inc. (NASDAQ:SLCT), Build-A-Bear Workshop, Inc (NYSE:BBW), Flexsteel Industries, Inc. (NASDAQ:FLXS), 9 Meters Biopharma, Inc. (NASDAQ:NMTR), and Trevena Inc (NASDAQ:TRVN). This group of stocks’ market caps are closest to MTRX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ITI | 14 | 39126 | -2 |
| SMSI | 11 | 7196 | -3 |
| SLCT | 9 | 29634 | 4 |
| BBW | 13 | 45092 | -1 |
| FLXS | 9 | 66461 | -1 |
| NMTR | 7 | 32996 | -8 |
| TRVN | 7 | 751 | -7 |
| Average | 10 | 31608 | -2.6 |
View table here if you experience formatting issues.
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 $32 million. That figure was $12 million in MTRX’s case. Iteris Inc (NYSE:ITI) is the most popular stock in this table. On the other hand 9 Meters Biopharma, Inc. (NASDAQ:NMTR) is the least popular one with only 7 bullish hedge fund positions. Matrix Service Co (NASDAQ:MTRX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MTRX is 40.4. 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 negative signal and 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 25.7% in 2021 through September 27th and surpassed the market again by 6.2 percentage points. Unfortunately MTRX wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); MTRX investors were disappointed as the stock returned 1.8% since the end of June (through 9/27) 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 most of these stocks already outperformed the market in 2021.
Follow Matrix Service Co (NASDAQ:MTRX)
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Disclosure: None. This article was originally published at Insider Monkey.
