Is Ambarella Inc. (NASDAQ:AMBA) a good equity to bet on 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.
Is Ambarella Inc. (NASDAQ:AMBA) a first-rate stock to buy now? Hedge funds are taking a bullish view. The number of long hedge fund bets inched up by 2 lately. Our calculations also showed that AMBA isn't among the 30 most popular stocks among hedge funds (see the video below). AMBA was in 21 hedge funds' portfolios at the end of June. There were 19 hedge funds in our database with AMBA positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to go over the recent hedge fund action surrounding Ambarella Inc. (NASDAQ:AMBA).
What have hedge funds been doing with Ambarella Inc. (NASDAQ:AMBA)?
At the end of the second quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the first quarter of 2019. On the other hand, there were a total of 14 hedge funds with a bullish position in AMBA 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.
More specifically, Citadel Investment Group was the largest shareholder of Ambarella Inc. (NASDAQ:AMBA), with a stake worth $34.6 million reported as of the end of March. Trailing Citadel Investment Group was Renaissance Technologies, which amassed a stake valued at $16.8 million. Columbus Circle Investors, D E Shaw, and Potrero Capital Research were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, specific money managers have been driving this bullishness. D E Shaw, managed by D. E. Shaw, initiated the most valuable position in Ambarella Inc. (NASDAQ:AMBA). D E Shaw had $11.4 million invested in the company at the end of the quarter. Peter A. Wright's P.A.W. CAPITAL PARTNERS also initiated a $1.8 million position during the quarter. The other funds with brand new AMBA positions are Paul Tudor Jones's Tudor Investment Corp, Frank Slattery's Symmetry Peak Management, and Chuck Royce's Royce & Associates.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Ambarella Inc. (NASDAQ:AMBA) but similarly valued. These stocks are trivago N.V. (NASDAQ:TRVG), Crocs, Inc. (NASDAQ:CROX), Athenex, Inc. (NASDAQ:ATNX), and MicroStrategy Incorporated (NASDAQ:MSTR). This group of stocks' market values are similar to AMBA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRVG,9,148988,-2 CROX,21,345004,-4 ATNX,10,395521,2 MSTR,17,174646,-3 Average,14.25,266040,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $266 million. That figure was $121 million in AMBA's case. Crocs, Inc. (NASDAQ:CROX) is the most popular stock in this table. On the other hand trivago N.V. (NASDAQ:TRVG) is the least popular one with only 9 bullish hedge fund positions. Ambarella Inc. (NASDAQ:AMBA) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on AMBA as the stock returned 42.4% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.