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Should I Avoid Zendesk Inc (ZEN)?

·6 min read

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Zendesk Inc (NYSE:ZEN).

Zendesk Inc (NYSE:ZEN) shareholders have witnessed a decrease in support from the world's most elite money managers recently. Zendesk Inc (NYSE:ZEN) was in 45 hedge funds' portfolios at the end of March. The all time high for this statistic is 63. Our calculations also showed that ZEN isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

To the average investor there are numerous indicators shareholders use to analyze stocks. Two of the less utilized indicators are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the best picks of the elite investment managers can outpace the broader indices by a superb margin (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Alex Sacerdote of Whale Rock Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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. With all of this in mind let's check out the latest hedge fund action encompassing Zendesk Inc (NYSE:ZEN).

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

At Q1's end, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ZEN over the last 23 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is ZEN A Good Stock To Buy?
Is ZEN A Good Stock To Buy?

Among these funds, Whale Rock Capital Management held the most valuable stake in Zendesk Inc (NYSE:ZEN), which was worth $245.1 million at the end of the fourth quarter. On the second spot was Cadian Capital which amassed $188.8 million worth of shares. Polar Capital, Echo Street Capital Management, and Tiger Global Management LLC 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 0 allocated the biggest weight to Zendesk Inc (NYSE:ZEN), around 11.96% of its 13F portfolio. 0 is also relatively very bullish on the stock, setting aside 8.52 percent of its 13F equity portfolio to ZEN.

Judging by the fact that Zendesk Inc (NYSE:ZEN) has faced falling interest from the entirety of the hedge funds we track, it's easy to see that there exists a select few hedge funds who sold off their positions entirely heading into Q2. Interestingly, David Thomas's Atalan Capital dumped the largest stake of the 750 funds monitored by Insider Monkey, worth about $71.6 million in stock, and Principal Global Investors's Columbus Circle Investors was right behind this move, as the fund dumped about $69.6 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 13 funds heading into Q2.

Let's now review hedge fund activity in other stocks similar to Zendesk Inc (NYSE:ZEN). We will take a look at WPP Plc (NASDAQ:WPP), Grifols SA (NASDAQ:GRFS), Arch Capital Group Ltd. (NASDAQ:ACGL), Avangrid, Inc. (NYSE:AGR), Masco Corporation (NYSE:MAS), Altice USA, Inc. (NYSE:ATUS), and Guardant Health, Inc. (NASDAQ:GH). All of these stocks' market caps are closest to ZEN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WPP,5,34389,-1 GRFS,12,321129,-5 ACGL,34,1671185,0 AGR,15,58976,5 MAS,33,686447,-7 ATUS,48,3599095,-8 GH,41,1747051,-11 Average,26.9,1159753,-3.9 [/table]

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 $1160 million. That figure was $1484 million in ZEN's case. Altice USA, Inc. (NYSE:ATUS) is the most popular stock in this table. On the other hand WPP Plc (NASDAQ:WPP) is the least popular one with only 5 bullish hedge fund positions. Zendesk Inc (NYSE:ZEN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ZEN is 59.9. 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 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 17.4% in 2021 through June 18th and still beat the market by 6.1 percentage points. Hedge funds were also right about betting on ZEN, though not to the same extent, as the stock returned 10% since Q1 (through June 18th) and outperformed the market as well.

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