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Is Educational Development Corporation (EDUC) A Good Stock To Buy?

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Debasis Saha
·6 min read
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In this article you are going to find out whether hedge funds think Educational Development Corporation (NASDAQ:EDUC) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Educational Development Corporation (NASDAQ:EDUC) has seen an increase in hedge fund interest in recent months. Educational Development Corporation (NASDAQ:EDUC) was in 3 hedge funds' portfolios at the end of September. The all time high for this statistics is 3. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 1 hedge funds in our database with EDUC holdings at the end of June. Our calculations also showed that EDUC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Gavin Saitowitz of Prelude Capital
Gavin Saitowitz of Prelude Capital

Gavin Saitowitz of Prelude Capital

At Insider Monkey we scour multiple sources to uncover 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 and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website. Now we're going to review the fresh hedge fund action regarding Educational Development Corporation (NASDAQ:EDUC).

What have hedge funds been doing with Educational Development Corporation (NASDAQ:EDUC)?

At Q3's end, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 200% from the second quarter of 2020. By comparison, 1 hedge funds held shares or bullish call options in EDUC a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is EDUC A Good Stock To Buy?
Is EDUC A Good Stock To Buy?

The largest stake in Educational Development Corporation (NASDAQ:EDUC) was held by Renaissance Technologies, which reported holding $5 million worth of stock at the end of September. It was followed by SG Capital Management with a $0.8 million position. The only other hedge fund that is bullish on the company was Prelude Capital (previously Springbok Capital).

Consequently, some big names were leading the bulls' herd. SG Capital Management, managed by Ken Grossman and Glen Schneider, initiated the largest position in Educational Development Corporation (NASDAQ:EDUC). SG Capital Management had $0.8 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle's Prelude Capital (previously Springbok Capital) also made a $0 million investment in the stock during the quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Educational Development Corporation (NASDAQ:EDUC) but similarly valued. These stocks are Equillium, Inc. (NASDAQ:EQ), Penns Woods Bancorp, Inc. (NASDAQ:PWOD), Western Copper and Gold Corporation (NYSE:WRN), Investar Holding Corporation (NASDAQ:ISTR), Celyad Oncology SA (NASDAQ:CYAD), MVC Capital, Inc. (NYSE:MVC), and Chemung Financial Corp. (NASDAQ:CHMG). This group of stocks' market valuations are similar to EDUC's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EQ,5,11814,1 PWOD,1,3405,0 WRN,3,2356,1 ISTR,5,13211,1 CYAD,1,126,-1 MVC,8,38046,0 CHMG,3,7400,0 Average,3.7,10908,0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 3.7 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $6 million in EDUC's case. MVC Capital, Inc. (NYSE:MVC) is the most popular stock in this table. On the other hand Penns Woods Bancorp, Inc. (NASDAQ:PWOD) is the least popular one with only 1 bullish hedge fund positions. Educational Development Corporation (NASDAQ:EDUC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for EDUC is 51.3. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 28.1% in 2020 through November 23rd and surpassed the market again by 15.4 percentage points. Unfortunately EDUC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EDUC investors were disappointed as the stock returned -6% since the end of September (through 11/23) 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 most of these stocks already outperformed the market in 2020.

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

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