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Hedge Funds Are Betting On Acadia Healthcare Company Inc (ACHC)

Abigail Fisher

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 752 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of September 30th. In this article we look at what those investors think of Acadia Healthcare Company Inc (NASDAQ:ACHC).

Acadia Healthcare Company Inc (NASDAQ:ACHC) investors should pay attention to an increase in support from the world's most elite money managers lately. ACHC was in 20 hedge funds' portfolios at the end of September. There were 17 hedge funds in our database with ACHC holdings at the end of the previous quarter. Our calculations also showed that ACHC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_735675" align="aligncenter" width="473"] Didric Cederholm of Lion Point Capital[/caption]

Didric Cederholm Lion Point Capital

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to analyze the key hedge fund action surrounding Acadia Healthcare Company Inc (NASDAQ:ACHC).

What does smart money think about Acadia Healthcare Company Inc (NASDAQ:ACHC)?

At Q3's end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ACHC over the last 17 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.

More specifically, P2 Capital Partners was the largest shareholder of Acadia Healthcare Company Inc (NASDAQ:ACHC), with a stake worth $200.8 million reported as of the end of September. Trailing P2 Capital Partners was Elliott Management, which amassed a stake valued at $135.2 million. Abrams Bison Investments, Lion Point, and Rock Springs Capital Management 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 P2 Capital Partners allocated the biggest weight to Acadia Healthcare Company Inc (NASDAQ:ACHC), around 13.57% of its 13F portfolio. Abrams Bison Investments is also relatively very bullish on the stock, dishing out 7.42 percent of its 13F equity portfolio to ACHC.

As industrywide interest jumped, some big names have jumped into Acadia Healthcare Company Inc (NASDAQ:ACHC) headfirst. Maverick Capital, managed by Lee Ainslie, created the largest position in Acadia Healthcare Company Inc (NASDAQ:ACHC). Maverick Capital had $3.4 million invested in the company at the end of the quarter. Richard C. Patton's Courage Capital also made a $3.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Benjamin A. Smith's Laurion Capital Management, Vishal Saluja and Pham Quang's Endurant Capital Management, and Michael Gelband's ExodusPoint Capital.

Let's now take a look at hedge fund activity in other stocks similar to Acadia Healthcare Company Inc (NASDAQ:ACHC). We will take a look at Texas Capital Bancshares Inc (NASDAQ:TCBI), Urban Outfitters, Inc. (NASDAQ:URBN), Hilton Grand Vacations Inc. (NYSE:HGV), and Proto Labs Inc (NYSE:PRLB). All of these stocks' market caps match ACHC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TCBI,20,249477,1 URBN,33,292388,12 HGV,42,1078532,5 PRLB,8,14581,-1 Average,25.75,408745,4.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $409 million. That figure was $575 million in ACHC's case. Hilton Grand Vacations Inc. (NYSE:HGV) is the most popular stock in this table. On the other hand Proto Labs Inc (NYSE:PRLB) is the least popular one with only 8 bullish hedge fund positions. Acadia Healthcare Company Inc (NASDAQ:ACHC) is not the least popular stock in this group but hedge fund interest is still below average. 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ACHC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ACHC investors were disappointed as the stock returned 3.5% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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

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