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Was The Smart Money Right About Coupa Software (COUP)?

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  • COUP
  • ^GSPC

In this article we are going to use hedge fund sentiment as a tool and determine whether Coupa Software Incorporated (NASDAQ:COUP) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Coupa Software Incorporated (NASDAQ:COUP) has experienced an increase in support from the world's most elite money managers of late. Coupa Software Incorporated (NASDAQ:COUP) was in 62 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 66. There were 50 hedge funds in our database with COUP holdings at the end of September. Our calculations also showed that COUP isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

To most traders, hedge funds are viewed as unimportant, old investment vehicles of yesteryear. While there are greater than 8000 funds trading at the moment, Our researchers choose to focus on the upper echelon of this group, around 850 funds. These investment experts manage the lion's share of the smart money's total asset base, and by monitoring their best investments, Insider Monkey has uncovered numerous investment strategies that have historically outperformed the S&P 500 index. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 197% since March 2017 (through March 2021) and beat the S&P 500 Index by 124 percentage points. You can download a sample issue of this newsletter on our website .

Chase Coleman Tiger Global Management
Chase Coleman Tiger Global Management

At Insider Monkey we leave no stone unturned when looking for 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 hydrogen fuel cell 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 look at the new hedge fund action encompassing Coupa Software Incorporated (NASDAQ:COUP).

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

At the end of the fourth quarter, a total of 62 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from the previous quarter. The graph below displays the number of hedge funds with bullish position in COUP over the last 22 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is COUP A Good Stock To Buy?
Is COUP A Good Stock To Buy?

More specifically, Lone Pine Capital was the largest shareholder of Coupa Software Incorporated (NASDAQ:COUP), with a stake worth $1430.4 million reported as of the end of December. Trailing Lone Pine Capital was Alkeon Capital Management, which amassed a stake valued at $487.9 million. Melvin Capital Management, SoMa Equity Partners, and Tiger Global Management LLC 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 Himension Capital allocated the biggest weight to Coupa Software Incorporated (NASDAQ:COUP), around 18.1% of its 13F portfolio. Center Lake Capital is also relatively very bullish on the stock, dishing out 15.86 percent of its 13F equity portfolio to COUP.

With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls' herd. Melvin Capital Management, managed by Gabriel Plotkin, initiated the largest position in Coupa Software Incorporated (NASDAQ:COUP). Melvin Capital Management had $389.7 million invested in the company at the end of the quarter. Chase Coleman's Tiger Global Management LLC also initiated a $225.4 million position during the quarter. The other funds with new positions in the stock are Israel Englander's Millennium Management, Jay Chen's Himension Capital, and Brad Gerstner's Altimeter Capital Management.

Let's check out hedge fund activity in other stocks similar to Coupa Software Incorporated (NASDAQ:COUP). We will take a look at Yandex NV (NASDAQ:YNDX), Slack Technologies Inc (NYSE:WORK), Fresenius Medical Care AG & Co. (NYSE:FMS), Williams Companies, Inc. (NYSE:WMB), Consolidated Edison, Inc. (NYSE:ED), The Kroger Co. (NYSE:KR), and Fortinet Inc (NASDAQ:FTNT). This group of stocks' market values resemble COUP's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position YNDX,34,1623779,1 WORK,66,3977861,46 FMS,9,15599,0 WMB,38,563371,0 ED,32,393295,14 KR,36,2381034,1 FTNT,32,1220671,-4 Average,35.3,1453659,8.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.3 hedge funds with bullish positions and the average amount invested in these stocks was $1454 million. That figure was $4125 million in COUP's case. Slack Technologies Inc (NYSE:WORK) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. (NYSE:FMS) is the least popular one with only 9 bullish hedge fund positions. Coupa Software Incorporated (NASDAQ:COUP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for COUP is 84.7. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately COUP wasn't nearly as popular as these 10 stocks and hedge funds that were betting on COUP were disappointed as the stock returned -20.6% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.

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