Is SDC Stock A Buy or Sell?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about SmileDirectClub, Inc. (NASDAQ:SDC) in this article.

Is SDC stock a buy? SmileDirectClub, Inc. (NASDAQ:SDC) has experienced a decrease in enthusiasm from smart money in recent months. SmileDirectClub, Inc. (NASDAQ:SDC) was in 25 hedge funds’ portfolios at the end of December. The all time high for this statistic is 29. There were 28 hedge funds in our database with SDC positions at the end of the third quarter. Our calculations also showed that SDC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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).

Ken Griffin of Citadel Investment Group

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now 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. Now let’s analyze the new hedge fund action encompassing SmileDirectClub, Inc. (NASDAQ:SDC).

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

At Q4’s end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in SDC a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Among these funds, D E Shaw held the most valuable stake in SmileDirectClub, Inc. (NASDAQ:SDC), which was worth $48.3 million at the end of the fourth quarter. On the second spot was Millennium Management which amassed $21.2 million worth of shares. 683 Capital Partners, Alyeska Investment Group, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position RiverPark Advisors allocated the biggest weight to SmileDirectClub, Inc. (NASDAQ:SDC), around 2.18% of its 13F portfolio. 683 Capital Partners is also relatively very bullish on the stock, setting aside 0.83 percent of its 13F equity portfolio to SDC.

Seeing as SmileDirectClub, Inc. (NASDAQ:SDC) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there exists a select few hedgies that slashed their full holdings in the fourth quarter. Interestingly, Michael Zimmerman’s Prentice Capital Management dumped the largest stake of all the hedgies watched by Insider Monkey, worth close to $16.3 million in stock. Philippe Laffont’s fund, Coatue Management, also cut its stock, about $9.9 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 3 funds in the fourth quarter.

Let’s check out hedge fund activity in other stocks similar to SmileDirectClub, Inc. (NASDAQ:SDC). These stocks are Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI), Xerox Holdings Corporation (NYSE:XRX), Spirit Realty Capital Inc (NYSE:SRC), Graphic Packaging Holding Company (NYSE:GPK), China Biologic Products Holdings Inc (NASDAQ:CBPO), Qurate Retail, Inc. (NASDAQ:QRTEA), and WPX Energy Inc (NYSE:WPX). All of these stocks’ market caps are closest to SDC’s market cap.

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As you can see these stocks had an average of 23.1 hedge funds with bullish positions and the average amount invested in these stocks was $526 million. That figure was $183 million in SDC’s case. Qurate Retail, Inc. (NASDAQ:QRTEA) is the most popular stock in this table. On the other hand Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI) is the least popular one with only 5 bullish hedge fund positions. SmileDirectClub, Inc. (NASDAQ:SDC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SDC is 60.1. 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 positive signal but 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 beat the market again by 0.9 percentage points. Unfortunately SDC wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on SDC were disappointed as the stock returned -15.2% 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 many of these stocks already outperformed the market since 2019.

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