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 Paylocity Holding Corp (NASDAQ:PCTY).
Is Paylocity Holding Corp (NASDAQ:PCTY) going to take off soon? The smart money is turning bullish. The number of long hedge fund bets increased by 7 recently. Our calculations also showed that PCTY 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). PCTY was in 33 hedge funds' portfolios at the end of the first quarter of 2020. There were 26 hedge funds in our database with PCTY holdings at the end of the previous quarter. Video: 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 S&P 500 ETFs by more than 51 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 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_224708" align="aligncenter" width="399"] New York Stock Exchange[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020's unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we're going to go over the recent hedge fund action regarding Paylocity Holding Corp (NASDAQ:PCTY).
What have hedge funds been doing with Paylocity Holding Corp (NASDAQ:PCTY)?
Heading into the second quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 27% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PCTY over the last 18 quarters. 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 Paylocity Holding Corp (NASDAQ:PCTY) was held by Adams Street Partners, which reported holding $153.5 million worth of stock at the end of September. It was followed by Alkeon Capital Management with a $61.8 million position. Other investors bullish on the company included Zevenbergen Capital Investments, Echo Street Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Adams Street Partners allocated the biggest weight to Paylocity Holding Corp (NASDAQ:PCTY), around 38.3% of its 13F portfolio. Diker Management is also relatively very bullish on the stock, earmarking 4.95 percent of its 13F equity portfolio to PCTY.
As industrywide interest jumped, specific money managers were leading the bulls' herd. Diker Management, managed by Mark N. Diker, assembled the biggest position in Paylocity Holding Corp (NASDAQ:PCTY). Diker Management had $11.7 million invested in the company at the end of the quarter. Frederick DiSanto's Ancora Advisors also made a $4.5 million investment in the stock during the quarter. The other funds with brand new PCTY positions are Greg Eisner's Engineers Gate Manager, Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, and Alec Litowitz and Ross Laser's Magnetar Capital.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Paylocity Holding Corp (NASDAQ:PCTY) but similarly valued. These stocks are GFL Environmental Inc. (NYSE:GFL), Five9 Inc (NASDAQ:FIVN), Columbia Sportswear Company (NASDAQ:COLM), and Hawaiian Electric Industries, Inc. (NYSE:HE). This group of stocks' market valuations match PCTY's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GFL,10,150736,10 FIVN,33,715609,-2 COLM,15,51797,-8 HE,13,190462,-4 Average,17.75,277151,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $277 million. That figure was $410 million in PCTY's case. Five9 Inc (NASDAQ:FIVN) is the most popular stock in this table. On the other hand GFL Environmental Inc. (NYSE:GFL) is the least popular one with only 10 bullish hedge fund positions. Paylocity Holding Corp (NASDAQ:PCTY) is not the most popular stock in this group but hedge fund interest is still above average. 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on PCTY as the stock returned 47.2% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.