Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in SPS Commerce, Inc. (NASDAQ:SPSC)? The smart money sentiment can provide an answer to this question.
SPS Commerce, Inc. (NASDAQ:SPSC) investors should be aware of an increase in enthusiasm from smart money recently. SPS Commerce, Inc. (NASDAQ:SPSC) was in 20 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 24. Our calculations also showed that SPSC isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
To the average investor there are a large number of tools stock traders have at their disposal to appraise publicly traded companies. A couple of the most under-the-radar tools are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the elite money managers can outperform the market by a healthy amount (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 .
Noam Gottesman of GLG Partners
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 we're going to review the new hedge fund action surrounding SPS Commerce, Inc. (NASDAQ:SPSC).
Do Hedge Funds Think SPSC Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 43% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in SPSC a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of SPS Commerce, Inc. (NASDAQ:SPSC), with a stake worth $44.8 million reported as of the end of March. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $28.6 million. GLG Partners, Millennium Management, and D E Shaw 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 Prescott Group Capital Management allocated the biggest weight to SPS Commerce, Inc. (NASDAQ:SPSC), around 0.15% of its 13F portfolio. GLG Partners is also relatively very bullish on the stock, designating 0.07 percent of its 13F equity portfolio to SPSC.
As industrywide interest jumped, key hedge funds have jumped into SPS Commerce, Inc. (NASDAQ:SPSC) headfirst. Millennium Management, managed by Israel Englander, established the largest position in SPS Commerce, Inc. (NASDAQ:SPSC). Millennium Management had $11.4 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also initiated a $1.1 million position during the quarter. The following funds were also among the new SPSC investors: Greg Eisner's Engineers Gate Manager, Mika Toikka's AlphaCrest Capital Management, and Donald Sussman's Paloma Partners.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as SPS Commerce, Inc. (NASDAQ:SPSC) but similarly valued. These stocks are Bed Bath & Beyond Inc. (NASDAQ:BBBY), Cronos Group Inc. (NASDAQ:CRON), Ambarella Inc (NASDAQ:AMBA), Dana Incorporated (NYSE:DAN), CareDx, Inc. (NASDAQ:CDNA), Mantech International Corp (NASDAQ:MANT), and Rogers Corporation (NYSE:ROG). This group of stocks' market valuations are closest to SPSC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BBBY,23,314226,-10 CRON,10,126181,-1 AMBA,35,286944,-1 DAN,26,545924,-2 CDNA,23,693239,3 MANT,14,34971,3 ROG,17,228144,-3 Average,21.1,318518,-1.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.1 hedge funds with bullish positions and the average amount invested in these stocks was $319 million. That figure was $133 million in SPSC's case. Ambarella Inc (NASDAQ:AMBA) is the most popular stock in this table. On the other hand Cronos Group Inc. (NASDAQ:CRON) is the least popular one with only 10 bullish hedge fund positions. SPS Commerce, Inc. (NASDAQ:SPSC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SPSC is 55. 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 negative signal and 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 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately SPSC wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); SPSC investors were disappointed as the stock returned -2.9% since the end of March (through 7/16) 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 most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.