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Hedge Funds Are Souring On Fastly, Inc. (FSLY)

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  • FSLY

In this article we will take a look at whether hedge funds think Fastly, Inc. (NYSE:FSLY) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Fastly, Inc. (NYSE:FSLY) the right investment to pursue these days? The smart money was in a pessimistic mood. The number of long hedge fund bets were trimmed by 2 in recent months. Fastly, Inc. (NYSE:FSLY) was in 24 hedge funds' portfolios at the end of June. The all time high for this statistic is 32. Our calculations also showed that FSLY isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Alex Sacerdote of Whale Rock Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let's take a gander at the latest hedge fund action surrounding Fastly, Inc. (NYSE:FSLY).

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

At second quarter's end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 27 hedge funds with a bullish position in FSLY a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Fastly, Inc. (NYSE:FSLY) was held by Abdiel Capital Advisors, which reported holding $707.4 million worth of stock at the end of June. It was followed by Whale Rock Capital Management with a $245.6 million position. Other investors bullish on the company included Citadel Investment Group, PEAK6 Capital Management, and D E Shaw. In terms of the portfolio weights assigned to each position Abdiel Capital Advisors allocated the biggest weight to Fastly, Inc. (NYSE:FSLY), around 20.4% of its 13F portfolio. StackLine Partners is also relatively very bullish on the stock, designating 7.55 percent of its 13F equity portfolio to FSLY.

Seeing as Fastly, Inc. (NYSE:FSLY) has experienced falling interest from hedge fund managers, we can see that there exists a select few funds who sold off their positions entirely last quarter. Intriguingly, Catherine D. Wood's ARK Investment Management cut the largest investment of all the hedgies watched by Insider Monkey, valued at close to $96.5 million in stock. Jonathan Lourie and Stuart Fiertz's fund, Cheyne Capital, also sold off its stock, about $4.8 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 2 funds last quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Fastly, Inc. (NYSE:FSLY) but similarly valued. We will take a look at Boyd Gaming Corporation (NYSE:BYD), Alcoa Corporation (NYSE:AA), Dada Nexus Limited (NASDAQ:DADA), Silicon Laboratories Inc. (NASDAQ:SLAB), Sotera Health Company (NASDAQ:SHC), First American Financial Corp (NYSE:FAF), and Angi Inc. (NASDAQ:ANGI). This group of stocks' market values are closest to FSLY's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BYD,36,534864,14 AA,44,1155642,6 DADA,18,160572,-3 SLAB,15,283453,-3 SHC,18,437692,-18 FAF,31,1224925,-1 ANGI,26,313560,-9 Average,26.9,587244,-2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.9 hedge funds with bullish positions and the average amount invested in these stocks was $587 million. That figure was $1140 million in FSLY's case. Alcoa Corporation (NYSE:AA) is the most popular stock in this table. On the other hand Silicon Laboratories Inc. (NASDAQ:SLAB) is the least popular one with only 15 bullish hedge fund positions. Fastly, Inc. (NYSE:FSLY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FSLY is 41. 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. 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 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 gained 24% in 2021 through October 22nd and surpassed the market again by 1.6 percentage points. Unfortunately FSLY wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); FSLY investors were disappointed as the stock returned -19.1% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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