Is PagerDuty, Inc. (NYSE:PD) 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.
PagerDuty, Inc. (NYSE:PD) investors should be aware of a decrease in hedge fund interest in recent months. PD was in 11 hedge funds' portfolios at the end of September. There were 22 hedge funds in our database with PD holdings at the end of the previous quarter. Our calculations also showed that PD isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman of GLG Partners[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's check out the recent hedge fund action surrounding PagerDuty, Inc. (NYSE:PD).
How have hedgies been trading PagerDuty, Inc. (NYSE:PD)?
At Q3's end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -50% from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position in PD a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Tiger Global Management was the largest shareholder of PagerDuty, Inc. (NYSE:PD), with a stake worth $4.2 million reported as of the end of September. Trailing Tiger Global Management was Raging Capital Management, which amassed a stake valued at $2.8 million. Kayak Investment Partners, GLG Partners, and Sculptor Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Kayak Investment Partners allocated the biggest weight to PagerDuty, Inc. (NYSE:PD), around 1.14% of its 13F portfolio. Diker Management is also relatively very bullish on the stock, earmarking 0.55 percent of its 13F equity portfolio to PD.
Judging by the fact that PagerDuty, Inc. (NYSE:PD) has faced falling interest from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of fund managers that slashed their positions entirely by the end of the third quarter. Intriguingly, David Costen Haley's HBK Investments cut the biggest position of the 750 funds tracked by Insider Monkey, totaling close to $9.4 million in stock. Nehal Chopra's fund, Ratan Capital Group, also dropped its stock, about $7.8 million worth. These moves are important to note, as aggregate hedge fund interest fell by 11 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks similar to PagerDuty, Inc. (NYSE:PD). We will take a look at ProAssurance Corporation (NYSE:PRA), Steelcase Inc. (NYSE:SCS), Penn National Gaming, Inc (NASDAQ:PENN), and Korn Ferry (NYSE:KFY). This group of stocks' market valuations match PD's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PRA,15,203495,0 SCS,21,120765,2 PENN,23,227001,3 KFY,23,169429,1 Average,20.5,180173,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $15 million in PD's case. Penn National Gaming, Inc (NASDAQ:PENN) is the most popular stock in this table. On the other hand ProAssurance Corporation (NYSE:PRA) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks PagerDuty, Inc. (NYSE:PD) is even less popular than PRA. Hedge funds dodged a bullet by taking a bearish stance towards PD. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PD wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PD investors were disappointed as the stock returned -7.8% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.