Is Merit Medical Systems, Inc. (MMSI) A Good Stock To Buy?

The equity market returns were very disappointing in the third quarter, “thanks” to the slowdown of China’s economy and the weaker-than-expected U.S. economic data. It was not entirely clear whether the broader market sell-off made U.S. equity valuations undervalued, but it definitely made them more attractive. It is worth mentioning that Russell 2000 ETF (IWM) underperformed the broad-market S&P 500 ETF by more than 14 percentage points during the period of June 25, 2015 through October 30, 2015. This clearly points to the fact that most investors, including hedge fund firms and institutional investors, heavily cut their exposure to high-potential (but seemingly riskier) small-cap stocks during the bloody third quarter. So let’s take a glance at the smart money sentiment towards Merit Medical Systems, Inc. (NASDAQ:MMSI) and see how it was affected.

Merit Medical Systems, Inc. (NASDAQ:MMSI) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 18 hedge funds’ portfolios at the end of the third quarter of 2015. 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 Universal Insurance Holdings, Inc. (NYSEAMEX:UVE), Interval Leisure Group, Inc. (NASDAQ:IILG), and California Water Service Group (NYSE:CWT) to gather more data points.

In the financial world there are tons of indicators investors can use to evaluate publicly traded companies. Some of the most useful indicators are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the best investment managers can outperform the market by a significant amount (see the details here).

With all of this in mind, let’s take a gander at the key action regarding Merit Medical Systems, Inc. (NASDAQ:MMSI).

Hedge fund activity in Merit Medical Systems, Inc. (NASDAQ:MMSI)

Of the funds tracked by Insider Monkey, Chuck Royce’s Royce & Associates has the number one position in Merit Medical Systems, Inc. (NASDAQ:MMSI), worth close to $23.4 million, comprising 0.1% of its total 13F portfolio. The second most bullish fund manager is Adage Capital Management, led by Phill Gross and Robert Atchinson, holding a $15.5 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Some other professional money managers that hold long positions consist of Jim Simons’s Renaissance Technologies, D E Shaw and John Overdeck and David Siegel’s Two Sigma Advisors.

Seeing as Merit Medical Systems, Inc. (NASDAQ:MMSI) has experienced falling interest from the smart money, it’s easy to see that there exists a select few fund managers that elected to cut their full holdings by the end of the third quarter. It’s worth mentioning that Neil Chriss’s Hutchin Hill Capital dropped the largest position of all the hedgies followed by Insider Monkey, comprising an estimated $0.8 million in stock, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund sold off about $0.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Merit Medical Systems, Inc. (NASDAQ:MMSI) but similarly valued. We will take a look at Universal Insurance Holdings, Inc. (NYSEAMEX:UVE), Interval Leisure Group, Inc. (NASDAQ:IILG), California Water Service Group (NYSE:CWT), and Sibanye Gold Ltd (ADR) (NYSE:SBGL). This group of stocks’ market valuations are similar to MMSI’s market valuation.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $94 million in MMSI’s case. Universal Insurance Holdings, Inc. (NYSEAMEX:UVE) is the most popular stock in this table. On the other hand Sibanye Gold Ltd (ADR) (NYSE:SBGL) is the least popular one with only 8 bullish hedge fund positions. Merit Medical Systems, Inc. (NASDAQ:MMSI) is tied for the most popular stock in this group and that makes MMSI worth a closer look.