Was The Smart Money Wrong About Piling Into Euronet Worldwide, Inc. (EEFT)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Euronet Worldwide, Inc. (NASDAQ:EEFT).

Euronet Worldwide, Inc. (NASDAQ:EEFT) has seen an increase in enthusiasm from smart money in recent months. Euronet Worldwide, Inc. (NASDAQ:EEFT) was in 37 hedge funds’ portfolios at the end of June. The all time high for this statistics is 47. There were 30 hedge funds in our database with EEFT positions at the end of the first quarter. Our calculations also showed that EEFT isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

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

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ryan Frick of Dorsal Capital

At Insider Monkey we scour multiple sources to uncover 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 most profitable companies in the world to pick the best large-cap stocks to buy. 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 to get excerpts of these letters in your inbox. Now let’s take a look at the new hedge fund action surrounding Euronet Worldwide, Inc. (NASDAQ:EEFT).

What have hedge funds been doing with Euronet Worldwide, Inc. (NASDAQ:EEFT)?

At the end of June, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EEFT over the last 20 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

The largest stake in Euronet Worldwide, Inc. (NASDAQ:EEFT) was held by Dorsal Capital Management, which reported holding $62.3 million worth of stock at the end of June. It was followed by Arrowstreet Capital with a $35.7 million position. Other investors bullish on the company included Millennium Management, D E Shaw, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Dorsal Capital Management allocated the biggest weight to Euronet Worldwide, Inc. (NASDAQ:EEFT), around 3.85% of its 13F portfolio. Sabrepoint Capital is also relatively very bullish on the stock, setting aside 3.16 percent of its 13F equity portfolio to EEFT.

As one would reasonably expect, some big names were breaking ground themselves. Dorsal Capital Management, managed by Ryan Frick and Oliver Evans, initiated the most valuable position in Euronet Worldwide, Inc. (NASDAQ:EEFT). Dorsal Capital Management had $62.3 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $35.7 million position during the quarter. The other funds with brand new EEFT positions are Ryan Caldwell’s Chiron Investment Management, Phill Gross and Robert Atchinson’s Adage Capital Management, and Steve Zheng’s Deepcurrents Investment Group.

Let’s go over hedge fund activity in other stocks similar to Euronet Worldwide, Inc. (NASDAQ:EEFT). These stocks are Mirati Therapeutics, Inc. (NASDAQ:MRTX), Old Republic International Corporation (NYSE:ORI), Dada Nexus Limited (NASDAQ:DADA), Skechers USA Inc (NYSE:SKX), Invesco Ltd. (NYSE:IVZ), People’s United Financial, Inc. (NASDAQ:PBCT), and First Industrial Realty Trust, Inc. (NYSE:FR). This group of stocks’ market caps are closest to EEFT’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.9 hedge funds with bullish positions and the average amount invested in these stocks was $445 million. That figure was $311 million in EEFT’s case. Mirati Therapeutics, Inc. (NASDAQ:MRTX) is the most popular stock in this table. On the other hand Dada Nexus Limited (NASDAQ:DADA) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Euronet Worldwide, Inc. (NASDAQ:EEFT) is more popular among hedge funds. Our overall hedge fund sentiment score for EEFT is 83.6. 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 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Unfortunately EEFT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on EEFT were disappointed as the stock returned -7.3% since the end of the second quarter (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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