Should I Buy RLX Technology Inc. (RLX)?

In this article we are going to use hedge fund sentiment as a tool and determine whether RLX Technology Inc. (NYSE:RLX) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is RLX Technology Inc. (NYSE:RLX) worth your attention right now? Prominent investors were getting more bullish. The number of long hedge fund bets went up by 23 in recent months. RLX Technology Inc. (NYSE:RLX) was in 23 hedge funds’ portfolios at the end of March. Our calculations also showed that RLX isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 115 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.

Ole Andreas Halvorsen of Viking Global

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery 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 let’s take a glance at the recent hedge fund action encompassing RLX Technology Inc. (NYSE:RLX).

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

At the end of March, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 23 from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RLX over the last 23 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Coatue Management was the largest shareholder of RLX Technology Inc. (NYSE:RLX), with a stake worth $154.7 million reported as of the end of March. Trailing Coatue Management was Himension Capital, which amassed a stake valued at $16.9 million. Indus Capital, Value Star Asset Management, and Viking Global 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 Value Star Asset Management allocated the biggest weight to RLX Technology Inc. (NYSE:RLX), around 9.55% of its 13F portfolio. Himension Capital is also relatively very bullish on the stock, dishing out 3.65 percent of its 13F equity portfolio to RLX.

As industrywide interest jumped, key money managers were breaking ground themselves. Coatue Management, managed by Philippe Laffont, created the most outsized position in RLX Technology Inc. (NYSE:RLX). Coatue Management had $154.7 million invested in the company at the end of the quarter. Jay Chen’s Himension Capital also initiated a $16.9 million position during the quarter. The following funds were also among the new RLX investors: David Kowitz and Sheldon Kasowitz’s Indus Capital, Xie Xuefeng’s Value Star Asset Management, and Andreas Halvorsen’s Viking Global.

Let’s also examine hedge fund activity in other stocks similar to RLX Technology Inc. (NYSE:RLX). We will take a look at PTC Inc (NASDAQ:PTC), Huntington Bancshares Incorporated (NASDAQ:HBAN), Clarivate Plc (NYSE:CLVT), HEICO Corporation (NYSE:HEI), Omnicom Group Inc. (NYSE:OMC), IDEX Corporation (NYSE:IEX), and Pembina Pipeline Corp (NYSE:PBA). All of these stocks’ market caps are closest to RLX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.3 hedge funds with bullish positions and the average amount invested in these stocks was $1239 million. That figure was $247 million in RLX’s case. HEICO Corporation (NYSE:HEI) is the most popular stock in this table. On the other hand Pembina Pipeline Corp (NYSE:PBA) is the least popular one with only 15 bullish hedge fund positions. RLX Technology Inc. (NYSE:RLX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for RLX is 31.3. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately RLX wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); RLX investors were disappointed as the stock returned -36.7% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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