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Did Hedge Funds Drop The Ball On Construction Partners, Inc. (ROAD) ?

Reymerlyn Martin

We can judge whether Construction Partners, Inc. (NASDAQ:ROAD) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Construction Partners, Inc. (NASDAQ:ROAD) has seen a decrease in support from the world's most elite money managers lately. ROAD was in 8 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 9 hedge funds in our database with ROAD positions at the end of the previous quarter. Our calculations also showed that ROAD isn't among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Dmitry Balyasny

We're going to take a peek at the recent hedge fund action surrounding Construction Partners, Inc. (NASDAQ:ROAD).

What does the smart money think about Construction Partners, Inc. (NASDAQ:ROAD)?

Heading into the first quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in ROAD over the last 14 quarters. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

ROAD_may2019

Among these funds, Royce & Associates held the most valuable stake in Construction Partners, Inc. (NASDAQ:ROAD), which was worth $3.7 million at the end of the fourth quarter. On the second spot was Marshall Wace LLP which amassed $1.5 million worth of shares. Moreover, Balyasny Asset Management, Greenhouse Funds, and Gratia Capital were also bullish on Construction Partners, Inc. (NASDAQ:ROAD), allocating a large percentage of their portfolios to this stock.

Since Construction Partners, Inc. (NASDAQ:ROAD) has witnessed bearish sentiment from hedge fund managers, logic holds that there were a few money managers that slashed their entire stakes in the third quarter. At the top of the heap, Anand Parekh's Alyeska Investment Group sold off the largest position of the "upper crust" of funds tracked by Insider Monkey, comprising close to $2.6 million in stock. David Rodriguez-Fraile's fund, BlueMar Capital Management, also cut its stock, about $1.2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds in the third quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Construction Partners, Inc. (NASDAQ:ROAD) but similarly valued. These stocks are Health Insurance Innovations Inc (NASDAQ:HIIQ), Och-Ziff Capital Management Group LLC (NYSE:OZM), CONSOL Coal Resources LP (NYSE:CCR), and Forum Energy Technologies Inc (NYSE:FET). All of these stocks' market caps are closest to ROAD's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HIIQ,18,156364,1 OZM,9,82213,0 CCR,5,97486,1 FET,11,52956,2 Average,10.75,97255,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $97 million. That figure was $9 million in ROAD's case. Health Insurance Innovations Inc (NASDAQ:HIIQ) is the most popular stock in this table. On the other hand CONSOL Coal Resources LP (NYSE:CCR) is the least popular one with only 5 bullish hedge fund positions. Construction Partners, Inc. (NASDAQ:ROAD) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on ROAD as the stock returned 44.3% and outperformed the market by an even larger margin.

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

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