Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Coupa Software Incorporated (NASDAQ:COUP)? The smart money sentiment can provide an answer to this question.
Is Coupa Software Incorporated (NASDAQ:COUP) a bargain? Hedge funds are buying. The number of bullish hedge fund bets advanced by 16 lately. Our calculations also showed that COUP isn't among the 30 most popular stocks among hedge funds (view the video below). 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 some fund managers who are betting on Dow reaching 40000 in a year, 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 take a gander at the fresh hedge fund action surrounding Coupa Software Incorporated (NASDAQ:COUP).
What have hedge funds been doing with Coupa Software Incorporated (NASDAQ:COUP)?
At Q2's end, a total of 57 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 39% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards COUP over the last 16 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Whale Rock Capital Management held the most valuable stake in Coupa Software Incorporated (NASDAQ:COUP), which was worth $397.8 million at the end of the second quarter. On the second spot was Sylebra Capital Management which amassed $347.2 million worth of shares. Moreover, Alkeon Capital Management, Viking Global, and Hitchwood Capital Management were also bullish on Coupa Software Incorporated (NASDAQ:COUP), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, key money managers have jumped into Coupa Software Incorporated (NASDAQ:COUP) headfirst. Viking Global, managed by Andreas Halvorsen, assembled the most outsized position in Coupa Software Incorporated (NASDAQ:COUP). Viking Global had $126.3 million invested in the company at the end of the quarter. Ross Turner's Pelham Capital also initiated a $94.8 million position during the quarter. The other funds with new positions in the stock are Stephen Mandel's Lone Pine Capital, Brandon Haley's Holocene Advisors, and Louis Bacon's Moore Global Investments.
Let's now take a look at hedge fund activity in other stocks similar to Coupa Software Incorporated (NASDAQ:COUP). These stocks are ON Semiconductor Corporation (NASDAQ:ON), Formula One Group (NASDAQ:FWONA), Qorvo Inc (NASDAQ:QRVO), and IPG Photonics Corporation (NASDAQ:IPGP). This group of stocks' market caps match COUP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ON,26,525773,-13 FWONA,18,322574,-3 QRVO,28,1180673,-6 IPGP,16,142417,3 Average,22,542859,-4.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $543 million. That figure was $2233 million in COUP's case. Qorvo Inc (NASDAQ:QRVO) is the most popular stock in this table. On the other hand IPG Photonics Corporation (NASDAQ:IPGP) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Coupa Software Incorporated (NASDAQ:COUP) is more popular among hedge funds. 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 COUP, though not to the same extent, as the stock returned 2.3% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.