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GMS Inc. (GMS): Are Hedge Funds Right About This Stock?

Debasis Saha

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of GMS Inc. (NYSE:GMS).

Is GMS Inc. (NYSE:GMS) going to take off soon? Prominent investors are getting less bullish. The number of long hedge fund bets shrunk by 1 recently. Our calculations also showed that GMS isn't among the 30 most popular stocks among hedge funds (click for Q1 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.

In the 21st century investor’s toolkit there are tons of signals market participants have at their disposal to evaluate stocks. Two of the most underrated signals are hedge fund and insider trading signals. We have shown that, historically, those who follow the top picks of the best money managers can trounce the market by a solid margin (see the details here).

[caption id="attachment_845793" align="aligncenter" width="400"] Peter Rathjens of Arrowstreet Capital[/caption]

Peter Rathjens Arrowstreet Capital 394

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we're going to analyze the latest hedge fund action surrounding GMS Inc. (NYSE:GMS).

What does smart money think about GMS Inc. (NYSE:GMS)?

Heading into the second quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GMS over the last 18 quarters. 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 GMS A Good Stock To Buy?

Among these funds, Coliseum Capital held the most valuable stake in GMS Inc. (NYSE:GMS), which was worth $23.3 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $22.1 million worth of shares. Adage Capital Management, AQR Capital Management, and Two Sigma Advisors 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 6.32% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, dishing out 0.34 percent of its 13F equity portfolio to GMS.

Judging by the fact that GMS Inc. (NYSE:GMS) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there exists a select few funds that elected to cut their entire stakes last quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital sold off the largest position of the 750 funds tracked by Insider Monkey, valued at about $6 million in stock, and Curtis Schenker and Craig Effron's Scoggin was right behind this move, as the fund cut about $3.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 1 funds last quarter.

Let's go over hedge fund activity in other stocks similar to GMS Inc. (NYSE:GMS). We will take a look at Atlas Air Worldwide Holdings, Inc. (NASDAQ:AAWW), MAG Silver Corporation (NYSE:MAG), JinkoSolar Holding Co., Ltd. (NYSE:JKS), and Cryolife Inc (NYSE:CRY). This group of stocks' market values are closest to GMS's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AAWW,17,57222,2 MAG,8,80264,-2 JKS,7,41159,-5 CRY,7,35479,-3 Average,9.75,53531,-2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $74 million in GMS's case. Atlas Air Worldwide Holdings, Inc. (NASDAQ:AAWW) is the most popular stock in this table. On the other hand JinkoSolar Holding Co., Ltd. (NYSE:JKS) is the least popular one with only 7 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 calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but still beat the market by 16.8 percentage points. Hedge funds were also right about betting on GMS as the stock returned 53.9% in Q2 (through June 25th) 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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