Proto Labs Inc (PRLB): Insiders Are Buying, Should You?

Is Proto Labs Inc (NYSE:PRLB) a buy, sell, or hold? The smart money is becoming hopeful. The number of bullish hedge fund bets rose by 2 in recent months.

To most investors, hedge funds are perceived as underperforming, outdated investment vehicles of the past. While there are greater than 8000 funds in operation today, we look at the moguls of this club, close to 450 funds. Most estimates calculate that this group oversees the lion’s share of the smart money’s total capital, and by keeping an eye on their top equity investments, we have uncovered a few investment strategies that have historically outpaced the S&P 500 index. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 23.3 percentage points in 8 months (explore the details and some picks here).

Equally as important, bullish insider trading activity is another way to parse down the stock market universe. Just as you’d expect, there are lots of reasons for an executive to downsize shares of his or her company, but just one, very simple reason why they would initiate a purchase. Various academic studies have demonstrated the market-beating potential of this tactic if investors know where to look (learn more here).

With these “truths” under our belt, let’s take a gander at the latest action encompassing Proto Labs Inc (NYSE:PRLB).

What have hedge funds been doing with Proto Labs Inc (NYSE:PRLB)?

At Q1’s end, a total of 10 of the hedge funds we track held long positions in this stock, a change of 25% from the previous quarter. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes substantially.

Of the funds we track, Drew Cupps’s Cupps Capital Management had the biggest position in Proto Labs Inc (NYSE:PRLB), worth close to $18.7 million, accounting for 1.9% of its total 13F portfolio. The second largest stake is held by Driehaus Capital, managed by Richard Driehaus, which held a $6.2 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other hedge funds that hold long positions include Jim Simons’s Renaissance Technologies, Chuck Royce’s Royce & Associates and Brian Ashford-Russell and Tim Woolley’s Polar Capital.

As aggregate interest increased, key money managers have been driving this bullishness. D E Shaw, managed by D. E. Shaw, established the most valuable position in Proto Labs Inc (NYSE:PRLB). D E Shaw had 1.4 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also initiated a $0.9 million position during the quarter. The other funds with brand new PRLB positions are Ken Griffin’s Citadel Investment Group and Paul Tudor Jones’s Tudor Investment Corp.

What have insiders been doing with Proto Labs Inc (NYSE:PRLB)?

Insider trading activity, especially when it’s bullish, is best served when the company in focus has experienced transactions within the past half-year. Over the latest six-month time period, Proto Labs Inc (NYSE:PRLB) has experienced 1 unique insiders purchasing, and 13 insider sales (see the details of insider trades here).

Let’s check out hedge fund and insider activity in other stocks similar to Proto Labs Inc (NYSE:PRLB). These stocks are MRC Global Inc (NYSE:MRC), Kennametal Inc. (NYSE:KMT), Blount International, Inc. (NYSE:BLT), Kaydon Corporation (NYSE:KDN), and RBC Bearings Incorporated (NASDAQ:ROLL). All of these stocks are in the machine tools & accessories industry and their market caps are closest to PRLB’s market cap.

With the returns demonstrated by our strategies, retail investors should always monitor hedge fund and insider trading activity, and Proto Labs Inc (NYSE:PRLB) applies perfectly to this mantra.

Click here to learn why you should track hedge funds