Should You Avoid Demandware Inc (DWRE)?

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.

Demandware Inc (NYSE:DWRE) shareholders have witnessed a decrease in enthusiasm from smart money of late. DWRE was in 12 hedge funds’ portfolios at the end of the third quarter of 2015. There were 15 hedge funds in our database with DWRE positions at the end of the previous quarter. At the end of this article we will also compare DWRE to other stocks, including The Advisory Board Company (NASDAQ:ABCO), SemGroup Corp (NYSE:SEMG), and Patterson-UTI Energy, Inc. (NASDAQ:PTEN) to get a better sense of its popularity.

In the financial world, there are a multitude of tools shareholders use to appraise their holdings. Two of the most innovative tools are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the top picks of the top hedge fund managers can outpace the market by a very impressive amount (see the details here).

Now, we’re going to take a gander at the key action surrounding Demandware Inc (NYSE:DWRE).

How have hedgies been trading Demandware Inc (NYSE:DWRE)?

At the Q3’s end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a drop of 20% from one quarter earlier. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Altimeter Capital Management, managed by Brad Gerstner, holds the number one position in Demandware Inc (NYSE:DWRE). Altimeter Capital Management has a $20.7 million position in the stock, comprising 1.3% of its 13F portfolio. On Altimeter Capital Management’s heels is Polar Capital, led by Brian Ashford-Russell and Tim Woolley, holding a $19.1 million position; 0.4% of its 13F portfolio is allocated to the stock. Other peers that are bullish, encompass Ken Griffin’s Citadel Investment Group, Drew Cupps’ Cupps Capital Management and Andrew Sandler’s Sandler Capital Management.

Since Demandware Inc (NYSE:DWRE) has faced falling interest from the aggregate hedge fund industry, logic holds that there were a few funds who sold off their full holdings heading into Q4. At the top of the heap, Vivek Mehta and Aaron Husock’s ShearLink Capital dumped the largest stake of the 700 funds followed by Insider Monkey, comprising close to $12.5 million in stock. Louis Bacon’s fund, Moore Global Investments, also said goodbye to its stock, about $6 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 3 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Demandware Inc (NYSE:DWRE) but similarly valued. We will take a look at The Advisory Board Company (NASDAQ:ABCO), SemGroup Corp (NYSE:SEMG), Patterson-UTI Energy, Inc. (NASDAQ:PTEN), and Sterling Bancorp (NYSE:STL). This group of stocks’ market values resemble DWRE’s market value.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $286 million, compared to $70 million in DWRE’s case. SemGroup Corp (NYSE:SEMG) is the most popular stock in this table. On the other hand The Advisory Board Company (NASDAQ:ABCO) is the least popular one with only 11 bullish hedge fund positions. Demandware Inc (NYSE:DWRE) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SEMG might be a better candidate to consider a long position.