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 Rapid7 Inc (NASDAQ:RPD).
Is Rapid7 Inc (NASDAQ:RPD) the right pick for your portfolio? Hedge funds are taking a bearish view. The number of long hedge fund positions dropped by 7 recently. Our calculations also showed that RPD 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.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_364884" align="aligncenter" width="398"] Mark Kingdon of Kingdon Capital[/caption]
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. With all of this in mind let's take a gander at the key hedge fund action surrounding Rapid7 Inc (NASDAQ:RPD).
How are hedge funds trading Rapid7 Inc (NASDAQ:RPD)?
Heading into the second quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -30% from one quarter earlier. By comparison, 27 hedge funds held shares or bullish call options in RPD a year ago. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
The largest stake in Rapid7 Inc (NASDAQ:RPD) was held by SQN Investors, which reported holding $48 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $21.3 million position. Other investors bullish on the company included Columbus Circle Investors, Millennium Management, and Kingdon Capital. In terms of the portfolio weights assigned to each position SQN Investors allocated the biggest weight to Rapid7 Inc (NASDAQ:RPD), around 4.85% of its 13F portfolio. Kingdon Capital is also relatively very bullish on the stock, setting aside 2.22 percent of its 13F equity portfolio to RPD.
Judging by the fact that Rapid7 Inc (NASDAQ:RPD) has experienced a decline in interest from the smart money, we can see that there exists a select few money managers that slashed their positions entirely in the first quarter. Intriguingly, Louis Bacon's Moore Global Investments sold off the largest position of all the hedgies followed by Insider Monkey, totaling about $6.4 million in stock, and Andrew Dalrymple and Barry McCorkell's Aubrey Capital Management was right behind this move, as the fund said goodbye to about $3.8 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 7 funds in the first quarter.
Let's now take a look at hedge fund activity in other stocks similar to Rapid7 Inc (NASDAQ:RPD). We will take a look at FGL Holdings (NYSE:FG), Tenable Holdings, Inc. (NASDAQ:TENB), iRhythm Technologies, Inc. (NASDAQ:IRTC), and The Howard Hughes Corporation (NYSE:HHC). All of these stocks' market caps are similar to RPD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FG,26,210333,9 TENB,24,236868,2 IRTC,15,176679,-7 HHC,24,792280,-1 Average,22.25,354040,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $354 million. That figure was $146 million in RPD's case. FGL Holdings (NYSE:FG) is the most popular stock in this table. On the other hand iRhythm Technologies, Inc. (NASDAQ:IRTC) is the least popular one with only 15 bullish hedge fund positions. Rapid7 Inc (NASDAQ:RPD) 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 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 and surpassed the market by 16.8 percentage points. Unfortunately RPD wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); RPD investors were disappointed as the stock returned 13.8% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.