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In this article we will take a look at whether hedge funds think KemPharm Inc (NASDAQ:KMPH) 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 KMPH a good stock to buy? Hedge funds were in an optimistic mood. The number of bullish hedge fund bets inched up by 6 recently. KemPharm Inc (NASDAQ:KMPH) was in 6 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 10. Our calculations also showed that KMPH isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 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 115 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.
Ken Griffin of Citadel Investment Group
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $24 biotech stock and is trying to buy the rest for around $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery 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. Keeping this in mind we're going to take a glance at the new hedge fund action surrounding KemPharm Inc (NASDAQ:KMPH).
Do Hedge Funds Think KMPH Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6 from the previous quarter. Below, you can check out the change in hedge fund sentiment towards KMPH over the last 23 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Sabby Capital was the largest shareholder of KemPharm Inc (NASDAQ:KMPH), with a stake worth $3.9 million reported as of the end of March. Trailing Sabby Capital was Citadel Investment Group, which amassed a stake valued at $3.2 million. Millennium Management, Citadel Investment Group, and Engineers Gate Manager were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Sabby Capital allocated the biggest weight to KemPharm Inc (NASDAQ:KMPH), around 0.75% of its 13F portfolio. Engineers Gate Manager is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to KMPH.
As aggregate interest increased, specific money managers have been driving this bullishness. Sabby Capital, managed by Hal Mintz, initiated the most valuable call position in KemPharm Inc (NASDAQ:KMPH). Sabby Capital had $3.9 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $3.2 million position during the quarter. The following funds were also among the new KMPH investors: Israel Englander's Millennium Management, Ken Griffin's Citadel Investment Group, and Greg Eisner's Engineers Gate Manager.
Let's check out hedge fund activity in other stocks similar to KemPharm Inc (NASDAQ:KMPH). These stocks are AFC Gamma, Inc. (NASDAQ:AFCG), Esports Entertainment Group Inc. (NASDAQ:GMBL), Nathan's Famous, Inc. (NASDAQ:NATH), Akumin Inc. (NASDAQ:AKU), X Financial (NYSE:XYF), Atlantic Power Corp (NYSE:AT), and Ciner Resources LP (NYSE:CINR). This group of stocks' market caps resemble KMPH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AFCG,5,15027,5 GMBL,4,2956,3 NATH,4,29713,-2 AKU,6,65789,0 XYF,4,2177,1 AT,21,35743,11 CINR,1,2313,0 Average,6.4,21960,2.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.4 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $4 million in KMPH's case. Atlantic Power Corp (NYSE:AT) is the most popular stock in this table. On the other hand Ciner Resources LP (NYSE:CINR) is the least popular one with only 1 bullish hedge fund positions. KemPharm Inc (NASDAQ:KMPH) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for KMPH is 40.5. 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. 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 19.3% in 2021 through June 25th and still beat the market by 4.8 percentage points. A small number of hedge funds were also right about betting on KMPH as the stock returned 55.1% since the end of the first quarter (through 6/25) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.