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Hedge Funds Aren’t Crazy About Advanced Drainage Systems Inc. (WMS) Anymore

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In this article we are going to use hedge fund sentiment as a tool and determine whether Advanced Drainage Systems Inc. (NYSE:WMS) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Advanced Drainage Systems Inc. (NYSE:WMS) investors should be aware of a decrease in activity from the world's largest hedge funds in recent months. Advanced Drainage Systems Inc. (NYSE:WMS) was in 21 hedge funds' portfolios at the end of September. The all time high for this statistic is 29. There were 26 hedge funds in our database with WMS holdings at the end of June. Our calculations also showed that WMS isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let's take a peek at the new hedge fund action encompassing Advanced Drainage Systems Inc. (NYSE:WMS).

Michael Platt Bluecrest Capital Management
Michael Platt Bluecrest Capital Management

Michael Platt of BlueCrest Capital Mgmt.

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

At Q3's end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the second quarter of 2021. The graph below displays the number of hedge funds with bullish position in WMS over the last 25 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Advanced Drainage Systems Inc. (NYSE:WMS) was held by Select Equity Group, which reported holding $377.4 million worth of stock at the end of September. It was followed by Impax Asset Management with a $321 million position. Other investors bullish on the company included Stockbridge Partners, MIG Capital, and SG Capital Management. In terms of the portfolio weights assigned to each position Stockbridge Partners allocated the biggest weight to Advanced Drainage Systems Inc. (NYSE:WMS), around 5.87% of its 13F portfolio. MIG Capital is also relatively very bullish on the stock, dishing out 4.7 percent of its 13F equity portfolio to WMS.

Seeing as Advanced Drainage Systems Inc. (NYSE:WMS) has faced declining sentiment from the aggregate hedge fund industry, logic holds that there is a sect of hedge funds that slashed their positions entirely in the third quarter. It's worth mentioning that Phill Gross and Robert Atchinson's Adage Capital Management cut the biggest stake of the "upper crust" of funds monitored by Insider Monkey, worth about $20.4 million in stock. Richard Driehaus's fund, Driehaus Capital, also cut its stock, about $9.9 million worth. These moves are interesting, as total hedge fund interest was cut by 5 funds in the third quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Advanced Drainage Systems Inc. (NYSE:WMS) but similarly valued. These stocks are Brooks Automation, Inc. (NASDAQ:BRKS), Americold Realty Trust (NYSE:COLD), National Retail Properties, Inc. (NYSE:NNN), Endava plc (NYSE:DAVA), Reinsurance Group of America Inc (NYSE:RGA), Cullen/Frost Bankers, Inc. (NYSE:CFR), and Vipshop Holdings Limited (NYSE:VIPS). This group of stocks' market caps match WMS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BRKS,29,577566,-3 COLD,15,93728,-1 NNN,21,120081,2 DAVA,16,282010,0 RGA,32,452166,4 CFR,13,92869,0 VIPS,30,560211,-6 Average,22.3,311233,-0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.3 hedge funds with bullish positions and the average amount invested in these stocks was $311 million. That figure was $1093 million in WMS's case. Reinsurance Group of America Inc (NYSE:RGA) is the most popular stock in this table. On the other hand Cullen/Frost Bankers, Inc. (NYSE:CFR) is the least popular one with only 13 bullish hedge fund positions. Advanced Drainage Systems Inc. (NYSE:WMS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for WMS is 42.8. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still beat the market by 3.6 percentage points. A small number of hedge funds were also right about betting on WMS as the stock returned 26% since the end of the third quarter (through 12/31) and outperformed the market by an even larger margin.

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