Is Mimecast Limited (MIME) Going to Burn These Hedge Funds?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Mimecast Limited (NASDAQ:MIME).

Mimecast Limited (NASDAQ:MIME) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 24 hedge funds’ portfolios at the end of June. Our calculations also showed that MIME isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). 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 Apollo Medical Holdings, Inc. (NASDAQ:AMEH), Dana Incorporated (NYSE:DAN), and Advantage Solutions Inc. (NASDAQ:ADV) to gather more data points.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Robert G. Moses of RGM Capital

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. Now let’s take a gander at the fresh hedge fund action surrounding Mimecast Limited (NASDAQ:MIME).

Do Hedge Funds Think MIME Is A Good Stock To Buy Now?

At Q2’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 34 hedge funds held shares or bullish call options in MIME a year ago. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

The largest stake in Mimecast Limited (NASDAQ:MIME) was held by Lakewood Capital Management, which reported holding $95.4 million worth of stock at the end of June. It was followed by Citadel Investment Group with a $44 million position. Other investors bullish on the company included Arrowstreet Capital, Washington Harbour Partners, and RGM Capital. In terms of the portfolio weights assigned to each position Washington Harbour Partners allocated the biggest weight to Mimecast Limited (NASDAQ:MIME), around 6.47% of its 13F portfolio. Lakewood Capital Management is also relatively very bullish on the stock, dishing out 3.94 percent of its 13F equity portfolio to MIME.

Judging by the fact that Mimecast Limited (NASDAQ:MIME) has experienced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few funds who were dropping their entire stakes in the second quarter. Intriguingly, Bruce Emery’s Greenvale Capital dumped the largest position of the 750 funds watched by Insider Monkey, worth an estimated $26.1 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also said goodbye to its stock, about $5.7 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to Mimecast Limited (NASDAQ:MIME). We will take a look at Apollo Medical Holdings, Inc. (NASDAQ:AMEH), Dana Incorporated (NYSE:DAN), Advantage Solutions Inc. (NASDAQ:ADV), SSR Mining Inc. (NASDAQ:SSRM), Tronox Holdings Plc (NYSE:TROX), Cassava Sciences, Inc. (NASDAQ:SAVA), and Cornerstone OnDemand, Inc. (NASDAQ:CSOD). This group of stocks’ market caps are similar to MIME’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.3 hedge funds with bullish positions and the average amount invested in these stocks was $358 million. That figure was $385 million in MIME’s case. Tronox Holdings Plc (NYSE:TROX) is the most popular stock in this table. On the other hand Apollo Medical Holdings, Inc. (NASDAQ:AMEH) is the least popular one with only 7 bullish hedge fund positions. Mimecast Limited (NASDAQ:MIME) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MIME is 52.8. 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. 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 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on MIME as the stock returned 29.8% since the end of Q2 (through 10/22) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.