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Is nCino, Inc. (NCNO) Going to Burn These Hedge Funds?

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In this article you are going to find out whether hedge funds think nCino, Inc. (NASDAQ:NCNO) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is nCino, Inc. (NASDAQ:NCNO) a superb stock to buy now? Money managers were taking a pessimistic view. The number of bullish hedge fund bets retreated by 7 in recent months. nCino, Inc. (NASDAQ:NCNO) was in 21 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 28. Our calculations also showed that NCNO isn't among the 30 most popular stocks among hedge funds (click for Q1 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 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 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, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. 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 let's go over the recent hedge fund action surrounding nCino, Inc. (NASDAQ:NCNO).

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

At the end of March, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards NCNO 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.

Is NCNO A Good Stock To Buy?
Is NCNO A Good Stock To Buy?

More specifically, HMI Capital was the largest shareholder of nCino, Inc. (NASDAQ:NCNO), with a stake worth $159.2 million reported as of the end of March. Trailing HMI Capital was Whale Rock Capital Management, which amassed a stake valued at $89.8 million. Islet Management, Tiger Global Management LLC, and SCGE Management 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 HMI Capital allocated the biggest weight to nCino, Inc. (NASDAQ:NCNO), around 5.68% of its 13F portfolio. JCSD Capital is also relatively very bullish on the stock, designating 2.58 percent of its 13F equity portfolio to NCNO.

Judging by the fact that nCino, Inc. (NASDAQ:NCNO) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of funds who were dropping their entire stakes heading into Q2. Interestingly, Eashwar Krishnan's Tybourne Capital Management dumped the biggest investment of the "upper crust" of funds followed by Insider Monkey, worth close to $72.5 million in stock, and Ravi Chopra's Azora Capital was right behind this move, as the fund said goodbye to about $9.7 million worth. These moves are important to note, as total hedge fund interest fell by 7 funds heading into Q2.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as nCino, Inc. (NASDAQ:NCNO) but similarly valued. These stocks are BJ's Wholesale Club Holdings, Inc. (NYSE:BJ), Globus Medical Inc (NYSE:GMED), Harley-Davidson, Inc. (NYSE:HOG), Emcor Group Inc (NYSE:EME), MP Materials Corp. (NYSE:MP), Lattice Semiconductor Corporation (NASDAQ:LSCC), and Coursera, Inc. (NYSE:COUR). This group of stocks' market values resemble NCNO's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BJ,14,135957,-11 GMED,28,193769,-6 HOG,28,822936,-7 EME,20,166658,-5 MP,29,2624120,-3 LSCC,24,276967,1 COUR,25,119794,25 Average,24,620029,-0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $620 million. That figure was $343 million in NCNO's case. MP Materials Corp. (NYSE:MP) is the most popular stock in this table. On the other hand BJ's Wholesale Club Holdings, Inc. (NYSE:BJ) is the least popular one with only 14 bullish hedge fund positions. nCino, Inc. (NASDAQ:NCNO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NCNO is 43.8. 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 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately NCNO wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); NCNO investors were disappointed as the stock returned -1.8% since the end of March (through 7/16) 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.