Was The Smart Money Right About Dropbox (DBX)?

In this article we will analyze whether Dropbox, Inc. (NASDAQ:DBX) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Hedge fund interest in Dropbox, Inc. (NASDAQ:DBX) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that DBX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). 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 The Interpublic Group of Companies Inc (NYSE:IPG), NRG Energy Inc (NYSE:NRG), and Bunge Limited (NYSE:BG) to gather more data points.

In today’s marketplace there are plenty of formulas stock market investors employ to analyze publicly traded companies. A couple of the best formulas are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the best picks of the top fund managers can outclass the market by a superb margin (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 197% since March 2017 (through March 2021) and beat the S&P 500 Index by 124 percentage points. You can download a sample issue of this newsletter on our website .

Gil Simon of SoMa Equity Partners

At Insider Monkey we leave no stone unturned when looking for 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 hydrogen fuel cell 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. Keeping this in mind let’s analyze the recent hedge fund action encompassing Dropbox, Inc. (NASDAQ:DBX).

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

At the end of the fourth quarter, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DBX over the last 22 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

The largest stake in Dropbox, Inc. (NASDAQ:DBX) was held by Renaissance Technologies, which reported holding $378.6 million worth of stock at the end of December. It was followed by SoMa Equity Partners with a $144.2 million position. Other investors bullish on the company included Valiant Capital, Millennium Management, and Greenhouse Funds. In terms of the portfolio weights assigned to each position Indaba Capital Management allocated the biggest weight to Dropbox, Inc. (NASDAQ:DBX), around 4.9% of its 13F portfolio. Greenhouse Funds is also relatively very bullish on the stock, earmarking 4.16 percent of its 13F equity portfolio to DBX.

Because Dropbox, Inc. (NASDAQ:DBX) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of funds that elected to cut their positions entirely by the end of the fourth quarter. It’s worth mentioning that Bruce Emery’s Greenvale Capital said goodbye to the biggest investment of all the hedgies watched by Insider Monkey, totaling close to $24.1 million in stock, and Malcolm Levine’s Dendur Capital was right behind this move, as the fund sold off about $19.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to Dropbox, Inc. (NASDAQ:DBX). We will take a look at The Interpublic Group of Companies Inc (NYSE:IPG), NRG Energy Inc (NYSE:NRG), Bunge Limited (NYSE:BG), Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), RH (NYSE:RH), Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), and Shaw Communications Inc (NYSE:SJR). This group of stocks’ market valuations resemble DBX’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.4 hedge funds with bullish positions and the average amount invested in these stocks was $864 million. That figure was $963 million in DBX’s case. Bunge Limited (NYSE:BG) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 6 bullish hedge fund positions. Dropbox, Inc. (NASDAQ:DBX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DBX is 71.4. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on DBX as the stock returned 15.8% since the end of Q4 (through 4/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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