Should I Buy Aquestive Therapeutics, Inc. (AQST)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Aquestive Therapeutics, Inc. (NASDAQ:AQST).

Is Aquestive Therapeutics, Inc. (NASDAQ:AQST) a buy here? Money managers were turning bullish. The number of long hedge fund bets advanced by 1 in recent months. Aquestive Therapeutics, Inc. (NASDAQ:AQST) was in 8 hedge funds’ portfolios at the end of September. The all time high for this statistics is 15. Our calculations also showed that AQST isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 7 hedge funds in our database with AQST holdings at the end of June.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 66 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.

Joseph Edelman of Perceptive Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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 website. With all of this in mind let’s take a look at the key hedge fund action encompassing Aquestive Therapeutics, Inc. (NASDAQ:AQST).

What have hedge funds been doing with Aquestive Therapeutics, Inc. (NASDAQ:AQST)?

At Q3’s end, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from one quarter earlier. By comparison, 3 hedge funds held shares or bullish call options in AQST a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Aquestive Therapeutics, Inc. (NASDAQ:AQST) was held by Perceptive Advisors, which reported holding $8.5 million worth of stock at the end of September. It was followed by Bracebridge Capital with a $2.1 million position. Other investors bullish on the company included Engineers Gate Manager, Citadel Investment Group, and ExodusPoint Capital. In terms of the portfolio weights assigned to each position Bracebridge Capital allocated the biggest weight to Aquestive Therapeutics, Inc. (NASDAQ:AQST), around 0.33% of its 13F portfolio. Perceptive Advisors is also relatively very bullish on the stock, dishing out 0.12 percent of its 13F equity portfolio to AQST.

As aggregate interest increased, key hedge funds have jumped into Aquestive Therapeutics, Inc. (NASDAQ:AQST) headfirst. ExodusPoint Capital, managed by Michael Gelband, initiated the most outsized position in Aquestive Therapeutics, Inc. (NASDAQ:AQST). ExodusPoint Capital had $0.1 million invested in the company at the end of the quarter. Cliff Asness’s AQR Capital Management also made a $0.1 million investment in the stock during the quarter. The only other fund with a new position in the stock is Peter Muller’s PDT Partners.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Aquestive Therapeutics, Inc. (NASDAQ:AQST) but similarly valued. We will take a look at Quad/Graphics, Inc. (NYSE:QUAD), Anworth Mortgage Asset Corporation (NYSE:ANH), Green Plains Partners LP (NASDAQ:GPP), Northrim BanCorp, Inc. (NASDAQ:NRIM), Century Casinos, Inc. (NASDAQ:CNTY), Soliton, Inc. (NASDAQ:SOLY), and Apyx Medical Corporation (NASDAQ:APYX). This group of stocks’ market caps match AQST’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $12 million in AQST’s case. Anworth Mortgage Asset Corporation (NYSE:ANH) is the most popular stock in this table. On the other hand Soliton, Inc. (NASDAQ:SOLY) is the least popular one with only 1 bullish hedge fund positions. Aquestive Therapeutics, Inc. (NASDAQ:AQST) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AQST is 57. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Hedge funds were also right about betting on AQST as the stock returned 38.4% since the end of Q3 (through 12/2) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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