Is Roadrunner Transportation Systems Inc (RRTS) A Good Stock To Buy?

You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund investors like Carl Icahn and George Soros hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.

Is Roadrunner Transportation Systems Inc (NYSE:RRTS) undervalued? Hedge funds are indeed becoming less hopeful. The number of long hedge fund investments retreated by 3 lately. There were 16 hedge funds in our database with RRTS positions at the end of the third 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 Model N Inc (NYSE:MODN), Aquinox Pharmaceuticals Inc (NASDAQ:AQXP), and Luxfer Holdings PLC (ADR) (NYSE:LXFR) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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Now, let’s view the key action surrounding Roadrunner Transportation Systems Inc (NYSE:RRTS).

How have hedgies been trading Roadrunner Transportation Systems Inc (NYSE:RRTS)?

At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a slump of 16% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in RRTS at the beginning of this year. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Paul Singer’s Elliott Management has the biggest position in Roadrunner Transportation Systems Inc (NYSE:RRTS), worth close to $14.9 million, corresponding to 0.1% of its total 13F portfolio. The second largest stake is held by AQR Capital Management, led by Cliff Asness, which has a $4.2 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism consist of D. E. Shaw’s D E Shaw, Paul Reeder and Edward Shapiro’s PAR Capital Management and Israel Englander’s Millennium Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Because Roadrunner Transportation Systems Inc (NYSE:RRTS) has witnessed a decline in interest from hedge fund managers, it’s easy to see that there exists a select few funds that slashed their full holdings in the third quarter. Intriguingly, Peter Muller’s PDT Partners dumped the largest stake of the “upper crust” of funds followed by Insider Monkey, worth close to $0.4 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also sold off its stock, about $0.1 million worth of RRTS shares.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Roadrunner Transportation Systems Inc (NYSE:RRTS) but similarly valued. We will take a look at Model N Inc (NYSE:MODN), Aquinox Pharmaceuticals Inc (NASDAQ:AQXP), Luxfer Holdings PLC (ADR) (NYSE:LXFR), and FRP Holdings Inc (NASDAQ:FRPH). This group of stocks’ market values are closest to RRTS’s market value.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $105 million. That figure was $35 million in RRTS’s case. Model N Inc (NYSE:MODN) is the most popular stock in this table. On the other hand FRP Holdings Inc (NASDAQ:FRPH) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Roadrunner Transportation Systems Inc (NYSE:RRTS) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: none.