How do we determine whether Agilysys, Inc. (NASDAQ:AGYS) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Is Agilysys, Inc. (NASDAQ:AGYS) a marvelous investment today? Investors who are in the know are in a pessimistic mood. The number of long hedge fund positions were cut by 1 recently. Our calculations also showed that AGYS isn't among the 30 most popular stocks among hedge funds (see 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 former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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 look at the latest hedge fund action surrounding Agilysys, Inc. (NASDAQ:AGYS).
How are hedge funds trading Agilysys, Inc. (NASDAQ:AGYS)?
Heading into the third quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from one quarter earlier. By comparison, 13 hedge funds held shares or bullish call options in AGYS a year ago. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, MAK Capital One held the most valuable stake in Agilysys, Inc. (NASDAQ:AGYS), which was worth $51.7 million at the end of the second quarter. On the second spot was Headlands Capital which amassed $13.9 million worth of shares. Moreover, Archon Capital Management, Renaissance Technologies, and Royce & Associates were also bullish on Agilysys, Inc. (NASDAQ:AGYS), allocating a large percentage of their portfolios to this stock.
Seeing as Agilysys, Inc. (NASDAQ:AGYS) has faced falling interest from hedge fund managers, logic holds that there were a few money managers that slashed their positions entirely in the second quarter. At the top of the heap, Richard S. Meisenberg's ACK Asset Management sold off the biggest investment of the "upper crust" of funds followed by Insider Monkey, totaling about $4.6 million in stock, and Matthew Hulsizer's PEAK6 Capital Management was right behind this move, as the fund dumped about $1.2 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 1 funds in the second quarter.
Let's now review hedge fund activity in other stocks similar to Agilysys, Inc. (NASDAQ:AGYS). We will take a look at Catchmark Timber Trust Inc (NYSE:CTT), FutureFuel Corp. (NYSE:FF), Boston Omaha Corporation (NASDAQ:BOMN), and Mechel PAO (NYSE:MTL). All of these stocks' market caps match AGYS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CTT,9,51055,0 FF,11,47387,-4 BOMN,5,242342,0 MTL,2,1365,-1 Average,6.75,85537,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $123 million in AGYS's case. FutureFuel Corp. (NYSE:FF) is the most popular stock in this table. On the other hand Mechel PAO (NYSE:MTL) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Agilysys, Inc. (NASDAQ:AGYS) 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 AGYS as the stock returned 19.3% during Q3 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.
Disclosure: None. This article was originally published at Insider Monkey.