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Is Apollo Endosurgery, Inc. (APEN) Going to Burn These Hedge Funds?

Debasis Saha

In this article we will take a look at whether hedge funds think Apollo Endosurgery, Inc. (NASDAQ:APEN) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Hedge fund interest in Apollo Endosurgery, Inc. (NASDAQ:APEN) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare APEN to other stocks including Ambow Education Holding Ltd. (NYSE:AMBO), Alio Gold Inc. (NYSE:ALO), and PolarityTE, Inc. (NASDAQ:PTE) to get a better sense of its popularity. 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 58 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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Wil Harkey Nantahala Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to take a look at the fresh hedge fund action encompassing Apollo Endosurgery, Inc. (NASDAQ:APEN).

Hedge fund activity in Apollo Endosurgery, Inc. (NASDAQ:APEN)

At the end of the first quarter, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards APEN over the last 18 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is APEN A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Nantahala Capital Management, managed by Wilmot B. Harkey and Daniel Mack, holds the largest position in Apollo Endosurgery, Inc. (NASDAQ:APEN). Nantahala Capital Management has a $3.5 million position in the stock, comprising 0.1% of its 13F portfolio. On Nantahala Capital Management's heels is Stonepine Capital, managed by Timothy P. Lynch, which holds a $3.2 million position; the fund has 3.4% of its 13F portfolio invested in the stock. Some other peers with similar optimism consist of Lawrence Hawkins's Prosight Capital, Renaissance Technologies and Philip Hempleman's Ardsley Partners. In terms of the portfolio weights assigned to each position Stonepine Capital allocated the biggest weight to Apollo Endosurgery, Inc. (NASDAQ:APEN), around 3.42% of its 13F portfolio. Prosight Capital is also relatively very bullish on the stock, dishing out 0.3 percent of its 13F equity portfolio to APEN.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Stonepine Capital).

Let's now take a look at hedge fund activity in other stocks similar to Apollo Endosurgery, Inc. (NASDAQ:APEN). We will take a look at Ambow Education Holding Ltd. (NYSE:AMBO), Alio Gold Inc. (NYSE:ALO), PolarityTE, Inc. (NASDAQ:PTE), and Opiant Pharmaceuticals, Inc. (NASDAQ:OPNT). This group of stocks' market caps resemble APEN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMBO,1,39,0 ALO,3,1558,0 PTE,11,4526,3 OPNT,4,7261,1 Average,4.75,3346,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.75 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $8 million in APEN's case. PolarityTE, Inc. (NASDAQ:PTE) is the most popular stock in this table. On the other hand Ambow Education Holding Ltd. (NYSE:AMBO) is the least popular one with only 1 bullish hedge fund positions. Apollo Endosurgery, Inc. (NASDAQ:APEN) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately APEN wasn't nearly as popular as these 10 stocks and hedge funds that were betting on APEN were disappointed as the stock returned -6.2% during the same time period 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 many of these stocks already outperformed the market so far this year.

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

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