Is PCTY Stock A Buy or Sell?

With the fourth-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter of 2021. One of these stocks was Paylocity Holding Corp (NASDAQ:PCTY).

Is PCTY stock a buy? The best stock pickers were reducing their bets on the stock. The number of bullish hedge fund bets dropped by 1 recently. Paylocity Holding Corp (NASDAQ:PCTY) was in 26 hedge funds’ portfolios at the end of December. The all time high for this statistic is 33. Our calculations also showed that PCTY isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 27 hedge funds in our database with PCTY positions at the end of the third quarter.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).

Steven Cohen of Point72 Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 website. Keeping this in mind we’re going to take a peek at the key hedge fund action regarding Paylocity Holding Corp (NASDAQ:PCTY).

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

At the end of December, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PCTY over the last 22 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Jeffrey Diehl’s Adams Street Partners has the biggest position in Paylocity Holding Corp (NASDAQ:PCTY), worth close to $177.7 million, comprising 37% of its total 13F portfolio. The second largest stake is held by Greg Poole of Echo Street Capital Management, with a $101.6 million position; 1% of its 13F portfolio is allocated to the company. Other professional money managers that hold long positions comprise Panayotis Takis Sparaggis’s Alkeon Capital Management, Nancy Zevenbergen’s Zevenbergen Capital Investments and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Adams Street Partners allocated the biggest weight to Paylocity Holding Corp (NASDAQ:PCTY), around 36.96% of its 13F portfolio. Falcon Point Capital is also relatively very bullish on the stock, earmarking 1.96 percent of its 13F equity portfolio to PCTY.

Judging by the fact that Paylocity Holding Corp (NASDAQ:PCTY) has faced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few hedgies that slashed their positions entirely by the end of the fourth quarter. Interestingly, Joseph Samuels’s Islet Management sold off the largest position of the 750 funds followed by Insider Monkey, worth close to $12.8 million in stock. Phill Gross and Robert Atchinson’s fund, Adage Capital Management, also dropped its stock, about $4 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 1 funds by the end of the fourth quarter.

Let’s go over hedge fund activity in other stocks similar to Paylocity Holding Corp (NASDAQ:PCTY). We will take a look at The Carlyle Group Inc (NASDAQ:CG), The Scotts Miracle-Gro Company (NYSE:SMG), Bill.com Holdings, Inc. (NYSE:BILL), Textron Inc. (NYSE:TXT), Mirati Therapeutics, Inc. (NASDAQ:MRTX), Bentley Systems, Incorporated (NASDAQ:BSY), and Centrais Elétricas Brasileiras S.A. – Eletrobrás (NYSE:EBR). All of these stocks’ market caps match PCTY’s market cap.

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As you can see these stocks had an average of 29.4 hedge funds with bullish positions and the average amount invested in these stocks was $1015 million. That figure was $639 million in PCTY’s case. Mirati Therapeutics, Inc. (NASDAQ:MRTX) is the most popular stock in this table. On the other hand Centrais Elétricas Brasileiras S.A. – Eletrobrás (NYSE:EBR) is the least popular one with only 6 bullish hedge fund positions. Paylocity Holding Corp (NASDAQ:PCTY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PCTY is 47.6. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and surpassed the market again by 0.9 percentage points. Unfortunately PCTY wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); PCTY investors were disappointed as the stock returned -7.3% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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