Is Perceptron, Inc. (PRCP) A Good Stock To Buy?

Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the third quarter. Among them, Valeant and Micron ranked among the top 30 picks and both lost around 20%. Citigroup, which was the third most popular stock, lost 10% amid uncertainty regarding the interest rates. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Perceptron, Inc. (NASDAQ:PRCP) was in 6 hedge funds’ portfolios at the end of the third quarter of 2015. PRCP shareholders have witnessed a decrease in hedge fund sentiment recently. There were 7 hedge funds in our database with PRCP holdings at the end of the previous quarter. 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 Northern Technologies International Corp (NASDAQ:NTIC), Inuvo, Inc. (NYSEAMEX:INUV), and TransAct Technologies Incorporated (NASDAQ:TACT) to gather more data points.

How are hedge funds trading Perceptron, Inc. (NASDAQ:PRCP)?

At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the second quarter. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Royce & Associates, managed by Chuck Royce, holds the number one position in Perceptron, Inc. (NASDAQ:PRCP). Royce & Associates has a $7 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Jim Simons of Renaissance Technologies, with a $3.8 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other professional money managers that hold long positions encompass Michael M. Rothenberg and David Sackler’s Moab Capital Partners, Charles Paquelet’s Skylands Capital and Adam Wright and Gary Kohler’s Blue Clay Capital.

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

Let’s now take a look at hedge fund activity in other stocks similar to Perceptron, Inc. (NASDAQ:PRCP). We will take a look at Northern Technologies International Corp (NASDAQ:NTIC), Inuvo, Inc. (NYSEAMEX:INUV), TransAct Technologies Incorporated (NASDAQ:TACT), and Arch Coal Inc (NYSE:ACI). All of these stocks’ market caps are similar to PRCP’s market cap.

As you can see these stocks had an average of 5.5 hedge funds with bullish positions and the average amount invested in these stocks was $6 million.That figure was $24 million in PRCP’s case. Arch Coal Inc (NYSE:ACI) is the most popular stock in this table. On the other hand Northern Technologies International Corp (NASDAQ:NTIC) is the least popular one with only 4 bullish hedge fund positions. Perceptron, Inc. (NASDAQ:PRCP) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ACI might be a better candidate to consider a long position.