Were Hedge Funds Right About Copart, Inc. (CPRT)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Copart, Inc. (NASDAQ:CPRT) and determine whether hedge funds skillfully traded this stock.

Is Copart, Inc. (NASDAQ:CPRT) a safe investment right now? Prominent investors were becoming less confident. The number of long hedge fund positions dropped by 2 recently. Copart, Inc. (NASDAQ:CPRT) was in 42 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 60. Our calculations also showed that CPRT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV 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. With all of this in mind we’re going to take a peek at the new hedge fund action surrounding Copart, Inc. (NASDAQ:CPRT).

Kevin Oram of Praesidium Investment Management Company

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

Heading into the fourth quarter of 2021, a total of 42 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CPRT over the last 25 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Gobi Capital, managed by Bo Shan, holds the number one position in Copart, Inc. (NASDAQ:CPRT). Gobi Capital has a $259.7 million position in the stock, comprising 6.9% of its 13F portfolio. Sitting at the No. 2 spot is Praesidium Investment Management Company, managed by Kevin Oram and Peter Uddo, which holds a $135.7 million position; 7.5% of its 13F portfolio is allocated to the company. Other peers that hold long positions consist of Aaron Cowen’s Suvretta Capital Management, Greg Poole’s Echo Street Capital Management and Steve Cohen’s Point72 Asset Management. In terms of the portfolio weights assigned to each position Lionstone Capital Management allocated the biggest weight to Copart, Inc. (NASDAQ:CPRT), around 7.66% of its 13F portfolio. Praesidium Investment Management Company is also relatively very bullish on the stock, earmarking 7.51 percent of its 13F equity portfolio to CPRT.

Judging by the fact that Copart, Inc. (NASDAQ:CPRT) has experienced a decline in interest from the smart money, logic holds that there were a few money managers who were dropping their positions entirely last quarter. Intriguingly, William Hyatt’s Hudson Way Capital Management dropped the largest stake of the “upper crust” of funds followed by Insider Monkey, comprising about $15.2 million in stock, and Brandon Haley’s Holocene Advisors was right behind this move, as the fund said goodbye to about $3.1 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 2 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Copart, Inc. (NASDAQ:CPRT). These stocks are Pinterest, Inc. (NYSE:PINS), Waste Connections, Inc. (NYSE:WCN), CBRE Group, Inc. (NYSE:CBRE), Affirm Holdings, Inc. (NASDAQ:AFRM), Verisk Analytics, Inc. (NASDAQ:VRSK), EPAM Systems Inc (NYSE:EPAM), and Nasdaq, Inc. (NASDAQ:NDAQ). This group of stocks’ market valuations are similar to CPRT’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.3 hedge funds with bullish positions and the average amount invested in these stocks was $1460 million. That figure was $998 million in CPRT’s case. Pinterest, Inc. (NYSE:PINS) is the most popular stock in this table. On the other hand Nasdaq, Inc. (NASDAQ:NDAQ) is the least popular one with only 21 bullish hedge fund positions. Copart, Inc. (NASDAQ:CPRT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CPRT is 52.4. 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. This is a slightly positive signal but 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 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, CPRT wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on CPRT were disappointed as the stock returned -6.8% since the end of September (through 1/31) 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 all of these stocks already outperformed the market since 2019.

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