OrthoPediatrics Corp. (KIDS): Hedge Funds Are Snapping Up

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards OrthoPediatrics Corp. (NASDAQ:KIDS).

Is OrthoPediatrics Corp. (NASDAQ:KIDS) undervalued? Prominent investors were betting on the stock. The number of long hedge fund bets moved up by 2 in recent months. OrthoPediatrics Corp. (NASDAQ:KIDS) was in 10 hedge funds’ portfolios at the end of June. The all time high for this statistic is 13. Our calculations also showed that KIDS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 8 hedge funds in our database with KIDS positions at the end of the first 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 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 79 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Noam Gottesman of GLG Partners

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. Keeping this in mind we’re going to take a look at the fresh hedge fund action regarding OrthoPediatrics Corp. (NASDAQ:KIDS).

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

At the end of June, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards KIDS over the last 24 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Royce & Associates held the most valuable stake in OrthoPediatrics Corp. (NASDAQ:KIDS), which was worth $9.4 million at the end of the second quarter. On the second spot was Point72 Asset Management which amassed $6.2 million worth of shares. Millennium Management, Citadel Investment Group, and GLG Partners 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 Royce & Associates allocated the biggest weight to OrthoPediatrics Corp. (NASDAQ:KIDS), around 0.06% of its 13F portfolio. Point72 Asset Management is also relatively very bullish on the stock, designating 0.03 percent of its 13F equity portfolio to KIDS.

Consequently, specific money managers were leading the bulls’ herd. Citadel Investment Group, managed by Ken Griffin, created the most outsized position in OrthoPediatrics Corp. (NASDAQ:KIDS). Citadel Investment Group had $2.5 million invested in the company at the end of the quarter. Ray Dalio’s Bridgewater Associates also initiated a $1.3 million position during the quarter. The following funds were also among the new KIDS investors: John Overdeck and David Siegel’s Two Sigma Advisors and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s go over hedge fund activity in other stocks similar to OrthoPediatrics Corp. (NASDAQ:KIDS). We will take a look at Impinj, Inc. (NASDAQ:PI), Forma Therapeutics Holdings, Inc. (NASDAQ:FMTX), Upland Software Inc (NASDAQ:UPLD), BellRing Brands, Inc. (NYSE:BRBR), Arcos Dorados Holding Inc (NYSE:ARCO), AlloVir, Inc. (NASDAQ:ALVR), and ChipMOS Technologies Inc (NASDAQ:IMOS). All of these stocks’ market caps resemble KIDS’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.9 hedge funds with bullish positions and the average amount invested in these stocks was $222 million. That figure was $26 million in KIDS’s case. Impinj, Inc. (NASDAQ:PI) is the most popular stock in this table. On the other hand ChipMOS Technologies Inc (NASDAQ:IMOS) is the least popular one with only 2 bullish hedge fund positions. OrthoPediatrics Corp. (NASDAQ:KIDS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for KIDS is 52.3. 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 25.7% in 2021 through September 27th and still beat the market by 6.2 percentage points. A small number of hedge funds were also right about betting on KIDS as the stock returned 4.9% since the end of the second quarter (through 9/27) and outperformed the market by an even larger margin.

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

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