ReachLocal Inc. (RLOC): Are Hedge Funds Right About This Stock?

We view hedge fund selling in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: LMR Partners. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case here because none of the 700+ hedge funds tracked by Insider Monkey identified RLOC as a viable investment and initiated a position in the stock.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as ReachLocal Inc. (NASDAQ:RLOC) but similarly valued. We will take a look at Sunesis Pharmaceuticals, Inc. (NASDAQ:SNSS), Support.com, Inc. (NASDAQ:SPRT), American Superconductor Corporation (NASDAQ:AMSC), and Vertex Energy Inc (NASDAQ:VTNR). All of these stocks’ market caps are similar to ReachLocal Inc. (NASDAQ:RLOC)’s market cap.

As you can see, these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $10 million in ReachLocal Inc. (NASDAQ:RLOC)’s case. Sunesis Pharmaceuticals, Inc. (NASDAQ:SNSS) is the most popular stock in this table. On the other hand, American Superconductor Corporation (NASDAQ:AMSC) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks, ReachLocal Inc. (NASDAQ:RLOC) is even less popular than American Superconductor Corporation (NASDAQ:AMSC). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case, more research is warranted.