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Is PagerDuty, Inc. (PD) A Good Stock To Buy?

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After several tireless days we have finished crunching the numbers from nearly 900 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of March 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards PagerDuty, Inc. (NYSE:PD).

Is PD a good stock to buy? PagerDuty, Inc. (NYSE:PD) has seen a decrease in activity from the world's largest hedge funds in recent months. PagerDuty, Inc. (NYSE:PD) was in 24 hedge funds' portfolios at the end of March. The all time high for this statistic is 30. Our calculations also showed that PD isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Robert Moses RGM Capital
Robert Moses RGM Capital

Robert G. Moses of RGM Capital

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. With all of this in mind we're going to take a glance at the new hedge fund action regarding PagerDuty, Inc. (NYSE:PD).

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

At Q1's end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PD over the last 23 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

According to Insider Monkey's hedge fund database, Catherine D. Wood's ARK Investment Management has the number one position in PagerDuty, Inc. (NYSE:PD), worth close to $401.6 million, corresponding to 0.8% of its total 13F portfolio. The second largest stake is held by RGM Capital, led by Robert G. Moses, holding a $42 million position; the fund has 1.8% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions contain Renaissance Technologies, D. E. Shaw's D E Shaw and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position RGM Capital allocated the biggest weight to PagerDuty, Inc. (NYSE:PD), around 1.84% of its 13F portfolio. Ardsley Partners is also relatively very bullish on the stock, dishing out 1.32 percent of its 13F equity portfolio to PD.

Since PagerDuty, Inc. (NYSE:PD) has witnessed bearish sentiment from hedge fund managers, it's easy to see that there is a sect of funds that elected to cut their entire stakes heading into Q2. At the top of the heap, Michel Massoud's Melqart Asset Management dumped the largest stake of the 750 funds monitored by Insider Monkey, totaling close to $3.5 million in stock, and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors was right behind this move, as the fund dropped about $1.9 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds heading into Q2.

Let's now take a look at hedge fund activity in other stocks similar to PagerDuty, Inc. (NYSE:PD). These stocks are Kennametal Inc. (NYSE:KMT), Merit Medical Systems, Inc. (NASDAQ:MMSI), Fabrinet (NYSE:FN), PTC Therapeutics, Inc. (NASDAQ:PTCT), LCI Industries (NYSE:LCII), ServisFirst Bancshares, Inc. (NYSE:SFBS), and Pluralsight, Inc. (NASDAQ:PS). This group of stocks' market caps match PD's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KMT,13,349737,-1 MMSI,18,350008,-2 FN,15,100470,2 PTCT,24,231769,1 LCII,18,159246,2 SFBS,9,9892,0 PS,34,858839,-1 Average,18.7,294280,0.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.7 hedge funds with bullish positions and the average amount invested in these stocks was $294 million. That figure was $676 million in PD's case. Pluralsight, Inc. (NASDAQ:PS) is the most popular stock in this table. On the other hand ServisFirst Bancshares, Inc. (NYSE:SFBS) is the least popular one with only 9 bullish hedge fund positions. PagerDuty, Inc. (NYSE:PD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PD is 57. 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 positive signal but 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 beat the market again by 7.7 percentage points. Unfortunately PD wasn't nearly as popular as these 5 stocks and hedge funds that were betting on PD were disappointed as the stock returned -4.4% 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 many of these stocks already outperformed the market since 2019.

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