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Is GMS A Good Stock To Buy Now?

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Debasis Saha
·6 min read
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Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 817 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is GMS Inc. (NYSE:GMS), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Is GMS a good stock to buy now? GMS Inc. (NYSE:GMS) was in 18 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 25. GMS has experienced an increase in activity from the world's largest hedge funds in recent months. There were 17 hedge funds in our database with GMS holdings at the end of June. Our calculations also showed that GMS 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.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Matthew Hulsizer PEAK6 Capital
Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 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 15 best blue chip stocks 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. Keeping this in mind we're going to review the fresh hedge fund action regarding GMS Inc. (NYSE:GMS).

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

Heading into the fourth quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in GMS over the last 21 quarters. With hedge funds' capital changing hands, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Is GMS A Good Stock To Buy?
Is GMS A Good Stock To Buy?

More specifically, Coliseum Capital was the largest shareholder of GMS Inc. (NYSE:GMS), with a stake worth $51.3 million reported as of the end of September. Trailing Coliseum Capital was Renaissance Technologies, which amassed a stake valued at $22.3 million. Arrowstreet Capital, AQR Capital Management, and GLG Partners 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 Coliseum Capital allocated the biggest weight to GMS Inc. (NYSE:GMS), around 5.48% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, setting aside 0.36 percent of its 13F equity portfolio to GMS.

Now, key hedge funds have been driving this bullishness. AlphaCrest Capital Management, managed by Mika Toikka, assembled the biggest position in GMS Inc. (NYSE:GMS). AlphaCrest Capital Management had $0.5 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also initiated a $0.2 million position during the quarter. The only other fund with a brand new GMS position is Matthew Hulsizer's PEAK6 Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as GMS Inc. (NYSE:GMS) but similarly valued. These stocks are US Ecology Inc. (NASDAQ:ECOL), AudioCodes Ltd. (NASDAQ:AUDC), Regenxbio Inc (NASDAQ:RGNX), Live Oak Bancshares Inc (NASDAQ:LOB), Universal Corp (NYSE:UVV), Lithium Americas Corp. (NYSE:LAC), and The ODP Corporation (NYSE:ODP). This group of stocks' market values match GMS's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ECOL,12,25411,-4 AUDC,9,25983,-3 RGNX,22,144111,-1 LOB,10,40785,0 UVV,12,74834,-1 LAC,3,3349,2 ODP,18,182264,0 Average,12.3,70962,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.3 hedge funds with bullish positions and the average amount invested in these stocks was $71 million. That figure was $99 million in GMS's case. Regenxbio Inc (NASDAQ:RGNX) is the most popular stock in this table. On the other hand Lithium Americas Corp. (NYSE:LAC) is the least popular one with only 3 bullish hedge fund positions. GMS Inc. (NYSE:GMS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GMS is 67.1. 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 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on GMS as the stock returned 14.6% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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