Should I Avoid Kornit Digital Ltd. (KRNT)?

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 Kornit Digital Ltd. (NASDAQ:KRNT) in this article.

Kornit Digital Ltd. (NASDAQ:KRNT) shareholders have witnessed a decrease in activity from the world’s largest hedge funds of late. Kornit Digital Ltd. (NASDAQ:KRNT) was in 21 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 24. There were 24 hedge funds in our database with KRNT holdings at the end of March. Our calculations also showed that KRNT isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

David E. Shaw of D.E. Shaw

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. Now we’re going to take a look at the latest hedge fund action encompassing Kornit Digital Ltd. (NASDAQ:KRNT).

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

At the end of June, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards KRNT over the last 24 quarters. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Among these funds, Driehaus Capital held the most valuable stake in Kornit Digital Ltd. (NASDAQ:KRNT), which was worth $42.8 million at the end of the second quarter. On the second spot was Noked Capital which amassed $34 million worth of shares. Intrinsic Edge Capital, G2 Investment Partners Management, and Sphera Global Healthcare Fund 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 Noked Capital allocated the biggest weight to Kornit Digital Ltd. (NASDAQ:KRNT), around 8.47% of its 13F portfolio. G2 Investment Partners Management is also relatively very bullish on the stock, designating 3.07 percent of its 13F equity portfolio to KRNT.

Because Kornit Digital Ltd. (NASDAQ:KRNT) has witnessed falling interest from hedge fund managers, it’s easy to see that there exists a select few hedgies who were dropping their full holdings last quarter. Intriguingly, Renaissance Technologies sold off the biggest investment of all the hedgies watched by Insider Monkey, valued at about $10.2 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dropped about $2.8 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 3 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Kornit Digital Ltd. (NASDAQ:KRNT). We will take a look at Duck Creek Technologies, Inc. (NASDAQ:DCT), nCino, Inc. (NASDAQ:NCNO), Vroom, Inc. (NASDAQ:VRM), Exelixis, Inc. (NASDAQ:EXEL), Select Medical Holdings Corporation (NYSE:SEM), Herbalife Nutrition Ltd. (NYSE:HLF), and TFS Financial Corporation (NASDAQ:TFSL). All of these stocks’ market caps are closest to KRNT’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.3 hedge funds with bullish positions and the average amount invested in these stocks was $592 million. That figure was $205 million in KRNT’s case. Herbalife Nutrition Ltd. (NYSE:HLF) is the most popular stock in this table. On the other hand TFS Financial Corporation (NASDAQ:TFSL) is the least popular one with only 9 bullish hedge fund positions. Kornit Digital Ltd. (NASDAQ:KRNT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for KRNT is 47.6. 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 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on KRNT as the stock returned 23.1% since the end of the second quarter (through 10/22) 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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