Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved dearly, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 20 S&P 500 stocks among hedge funds beat the S&P 500 Index by nearly 10 percentage points so far in 2019. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Coupa Software Incorporated (NASDAQ:COUP).
Is Coupa Software Incorporated (NASDAQ:COUP) a healthy stock for your portfolio? Investors who are in the know are in a pessimistic mood. The number of long hedge fund bets went down by 2 lately. Our calculations also showed that COUP isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). COUP was in 55 hedge funds' portfolios at the end of September. There were 57 hedge funds in our database with COUP positions at the end of the previous quarter. Video: Click the image to 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 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_670980" align="aligncenter" width="600"] Gabriel Plotkin of Melvin Capital Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the new hedge fund action encompassing Coupa Software Incorporated (NASDAQ:COUP).
What have hedge funds been doing with Coupa Software Incorporated (NASDAQ:COUP)?
At the end of the third quarter, a total of 55 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in COUP over the last 17 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
More specifically, Whale Rock Capital Management was the largest shareholder of Coupa Software Incorporated (NASDAQ:COUP), with a stake worth $406.8 million reported as of the end of September. Trailing Whale Rock Capital Management was Sylebra Capital Management, which amassed a stake valued at $334.6 million. Alkeon Capital Management, Lone Pine Capital, and Viking Global 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 Center Lake Capital allocated the biggest weight to Coupa Software Incorporated (NASDAQ:COUP), around 28.89% of its portfolio. Crosslink Capital is also relatively very bullish on the stock, earmarking 17.3 percent of its 13F equity portfolio to COUP.
Due to the fact that Coupa Software Incorporated (NASDAQ:COUP) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there is a sect of money managers that decided to sell off their full holdings in the third quarter. At the top of the heap, Brandon Haley's Holocene Advisors dumped the biggest position of all the hedgies watched by Insider Monkey, valued at about $64.6 million in stock. Michael Hintze's fund, CQS Cayman LP, also cut its stock, about $42.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds in the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Coupa Software Incorporated (NASDAQ:COUP) but similarly valued. We will take a look at Companhia de Saneamento Basico do Estado de Sao Paulo - SABESP (NYSE:SBS), Ubiquiti Inc. (NYSE:UI), Zendesk Inc (NYSE:ZEN), and Royal Gold, Inc (NASDAQ:RGLD). This group of stocks' market valuations match COUP's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SBS,11,372148,-1 UI,16,182015,-1 ZEN,44,1453964,-6 RGLD,25,126740,6 Average,24,533717,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $534 million. That figure was $2563 million in COUP's case. Zendesk Inc (NYSE:ZEN) is the most popular stock in this table. On the other hand Companhia de Saneamento Basico do Estado de Sao Paulo - SABESP (NYSE:SBS) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Coupa Software Incorporated (NASDAQ:COUP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on COUP as the stock returned 18.5% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.