Should You Buy Addus Homecare Corporation (ADUS)?

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.

Is Addus Homecare Corporation (NASDAQ:ADUS) ready to rally soon? Investors who are in the know are taking a bullish view. The number of bullish hedge fund positions moved up by 3 lately. ADUS was in 10 hedge funds’ portfolios at the end of the third quarter of 2015. There were 7 hedge funds in our database with ADUS holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Teligent Inc (NASDAQ:TLGT), Campus Crest Communities Inc (NYSE:CCG), and Stoneridge, Inc. (NYSE:SRI) to gather more data points.

Keeping this in mind, let’s view the fresh action regarding Addus Homecare Corporation (NASDAQ:ADUS).

How have hedgies been trading Addus Homecare Corporation (NASDAQ:ADUS)?

Heading into Q4, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 43% from one quarter earlier. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Cliff Asness’s AQR Capital Management has the largest position in Addus Homecare Corporation (NASDAQ:ADUS), worth close to $5.9 million, corresponding to less than 0.1% of its total 13F portfolio. The second largest stake is held by Renaissance Technologies, led by Jim Simons, holding a $4.8 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Some other professional money managers with similar optimism comprise Chuck Royce’s Royce & Associates, D E Shaw and John Overdeck and David Siegel’s Two Sigma Advisors.

Now, key hedge funds were breaking ground themselves. Algert Coldiron Investors, managed by Peter Algert and Kevin Coldiron, assembled the most valuable position in Addus Homecare Corporation (NASDAQ:ADUS). Algert Coldiron Investors had $1 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also made a $0.5 million investment in the stock during the quarter. The following funds were also among the new ADUS investors: Neil Chriss’s Hutchin Hill Capital, Mike Vranos’s Ellington, and Joseph Edelman’s Perceptive Advisors.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Addus Homecare Corporation (NASDAQ:ADUS) but similarly valued. We will take a look at Teligent Inc (NASDAQ:TLGT), Campus Crest Communities Inc (NYSE:CCG), Stoneridge, Inc. (NYSE:SRI), and Servicesource International Inc (NASDAQ:SREV). This group of stocks’ market values match ADUS’s market value.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $19 million in ADUS’s case. Stoneridge, Inc. (NYSE:SRI) is the most popular stock in this table. On the other hand Teligent Inc (NASDAQ:TLGT is the least popular one with only 10 bullish hedge fund positions. 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.