Does Paycom Software Inc (NYSE:PAYC) represent a good buying opportunity at the moment? Let’s briefly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail unconceivably on some occasions, but their stock picks have been generating superior risk-adjusted returns on average over the years.
Paycom Software Inc (NYSE:PAYC) was in 23 hedge funds’ portfolios at the end of September. PAYC has seen an increase in hedge fund sentiment recently. There were 21 hedge funds in our database with PAYC holdings at the end of the previous quarter. Our calculations also showed that PAYC isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
We’re going to take a glance at the latest hedge fund action surrounding Paycom Software Inc (NYSE:PAYC).
How have hedgies been trading Paycom Software Inc (NYSE:PAYC)?
Heading into the fourth quarter of 2018, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in PAYC over the last 13 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Paycom Software Inc (NYSE:PAYC) was held by Millennium Management, which reported holding $73.2 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $31.4 million position. Other investors bullish on the company included Fisher Asset Management, McKinley Capital Management, and Echo Street Capital Management.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Hitchwood Capital Management, managed by James Crichton, established the most outsized position in Paycom Software Inc (NYSE:PAYC). Hitchwood Capital Management had $7.8 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $4.3 million investment in the stock during the quarter. The following funds were also among the new PAYC investors: Richard Driehaus’s Driehaus Capital, John Overdeck and David Siegel’s Two Sigma Advisors, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Paycom Software Inc (NYSE:PAYC) but similarly valued. We will take a look at A. O. Smith Corporation (NYSE:AOS), West Pharmaceutical Services Inc. (NYSE:WST), Autohome Inc (NYSE:ATHM), and NiSource Inc. (NYSE:NI). This group of stocks’ market caps are closest to PAYC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AOS | 33 | 738739 | 12 |
| WST | 17 | 252641 | 4 |
| ATHM | 18 | 615842 | 0 |
| NI | 13 | 626278 | 0 |
| Average | 20.25 | 558375 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $558 million. That figure was $214 million in PAYC’s case. A. O. Smith Corporation (NYSE:AOS) is the most popular stock in this table. On the other hand NiSource Inc. (NYSE:NI) is the least popular one with only 13 bullish hedge fund positions. Paycom Software Inc (NYSE:PAYC) 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 AOS might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
