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Hedge Funds Are Crazy About Zuora, Inc. (ZUO)

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In this article we will analyze whether Zuora, Inc. (NYSE:ZUO) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Zuora, Inc. (NYSE:ZUO) has experienced a decrease in activity from the world's largest hedge funds recently. Zuora, Inc. (NYSE:ZUO) was in 23 hedge funds' portfolios at the end of September. The all time high for this statistic is 27. Our calculations also showed that ZUO isn't among the 30 most popular stocks among hedge funds (click for Q3 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. Keeping this in mind we're going to check out the latest hedge fund action regarding Zuora, Inc. (NYSE:ZUO).

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

Heading into the fourth quarter of 2021, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in ZUO a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Is ZUO A Good Stock To Buy?
Is ZUO A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Greenhouse Funds, managed by Joe Milano, holds the biggest position in Zuora, Inc. (NYSE:ZUO). Greenhouse Funds has a $53.8 million position in the stock, comprising 5.4% of its 13F portfolio. Coming in second is Constantinos J. Christofilis of Archon Capital Management, with a $39.2 million position; the fund has 5.5% of its 13F portfolio invested in the stock. Other professional money managers that are bullish encompass Brian Bares's Bares Capital Management, Brian Ashford-Russell and Tim Woolley's Polar Capital and John Overdeck and David Siegel's Two Sigma Advisors. In terms of the portfolio weights assigned to each position Archon Capital Management allocated the biggest weight to Zuora, Inc. (NYSE:ZUO), around 5.54% of its 13F portfolio. Greenhouse Funds is also relatively very bullish on the stock, designating 5.42 percent of its 13F equity portfolio to ZUO.

Due to the fact that Zuora, Inc. (NYSE:ZUO) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there exists a select few hedge funds who were dropping their full holdings last quarter. Interestingly, Mina Faltas's Washington Harbour Partners dumped the biggest investment of the 750 funds tracked by Insider Monkey, valued at an estimated $23.4 million in call options. Steve Pigott's fund, Fort Baker Capital Management, also said goodbye to its call options, about $3.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds last quarter.

Let's check out hedge fund activity in other stocks similar to Zuora, Inc. (NYSE:ZUO). These stocks are SmileDirectClub, Inc. (NASDAQ:SDC), Morphic Holding, Inc. (NASDAQ:MORF), Enerplus Corp (NYSE:ERF), Maxar Technologies Inc (NYSE:MAXR), Tootsie Roll Industries, Inc. (NYSE:TR), Palomar Holdings, Inc. (NASDAQ:PLMR), and Four Corners Property Trust, Inc. (NYSE:FCPT). This group of stocks' market valuations are closest to ZUO's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SDC,18,58711,-1 MORF,21,406257,2 ERF,18,169795,0 MAXR,13,140936,-2 TR,12,27608,0 PLMR,6,9415,0 FCPT,14,34029,-1 Average,14.6,120964,-0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.6 hedge funds with bullish positions and the average amount invested in these stocks was $121 million. That figure was $190 million in ZUO's case. Morphic Holding, Inc. (NASDAQ:MORF) is the most popular stock in this table. On the other hand Palomar Holdings, Inc. (NASDAQ:PLMR) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Zuora, Inc. (NYSE:ZUO) is more popular among hedge funds. Our overall hedge fund sentiment score for ZUO is 76.6. 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 returned 31.1% in 2021 through December 9th but still managed to beat the market by 5.1 percentage points. Hedge funds were also right about betting on ZUO as the stock returned 17.1% since the end of September (through 12/9) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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