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Was The Smart Money Right About Smartsheet Inc. (SMAR)?

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In this article you are going to find out whether hedge funds think Smartsheet Inc. (NYSE:SMAR) 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.

Smartsheet Inc. (NYSE:SMAR) has experienced an increase in support from the world's most elite money managers of late. Smartsheet Inc. (NYSE:SMAR) was in 49 hedge funds' portfolios at the end of June. The all time high for this statistic is 50. Our calculations also showed that SMAR isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

According to most shareholders, hedge funds are perceived as worthless, old investment tools of the past. While there are more than 8000 funds in operation at present, We hone in on the top tier of this club, approximately 850 funds. These money managers watch over bulk of the smart money's total capital, and by paying attention to their matchless equity investments, Insider Monkey has found several investment strategies that have historically outstripped Mr. Market. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Ryan Frick Dorsal Capital
Ryan Frick Dorsal Capital

Ryan Frick of Dorsal Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining stock. We go through lists like the 10 best EV 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 analyze the recent hedge fund action surrounding Smartsheet Inc. (NYSE:SMAR).

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

At second quarter's end, a total of 49 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 26% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SMAR over the last 24 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Among these funds, Alkeon Capital Management held the most valuable stake in Smartsheet Inc. (NYSE:SMAR), which was worth $238.9 million at the end of the second quarter. On the second spot was Foxhaven Asset Management which amassed $165.8 million worth of shares. Polar Capital, Citadel Investment Group, and 12 West Capital 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 Calixto Global Investors allocated the biggest weight to Smartsheet Inc. (NYSE:SMAR), around 19.22% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, designating 6.4 percent of its 13F equity portfolio to SMAR.

Now, key money managers have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, created the most valuable position in Smartsheet Inc. (NYSE:SMAR). Point72 Asset Management had $100.4 million invested in the company at the end of the quarter. Ryan Frick and Oliver Evans's Dorsal Capital Management also made a $72.3 million investment in the stock during the quarter. The following funds were also among the new SMAR investors: Stanley Druckenmiller's Duquesne Capital, Robert Smith's Vista Equity Partners, and Spencer M. Waxman's Shannon River Fund Management.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Smartsheet Inc. (NYSE:SMAR) but similarly valued. These stocks are Kimco Realty Corp (NYSE:KIM), Globant SA (NYSE:GLOB), Service Corporation International (NYSE:SCI), Phillips 66 Partners LP (NYSE:PSXP), Sealed Air Corporation (NYSE:SEE), Bright Horizons Family Solutions Inc (NYSE:BFAM), and Juniper Networks, Inc. (NYSE:JNPR). This group of stocks' market values are closest to SMAR's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KIM,20,218918,3 GLOB,23,447290,6 SCI,24,527197,1 PSXP,5,36056,0 SEE,28,705369,1 BFAM,17,107496,-1 JNPR,27,355046,-2 Average,20.6,342482,1.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.6 hedge funds with bullish positions and the average amount invested in these stocks was $342 million. That figure was $1484 million in SMAR's case. Sealed Air Corporation (NYSE:SEE) is the most popular stock in this table. On the other hand Phillips 66 Partners LP (NYSE:PSXP) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Smartsheet Inc. (NYSE:SMAR) is more popular among hedge funds. Our overall hedge fund sentiment score for SMAR is 89.4. 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 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. Unfortunately SMAR wasn't nearly as popular as these 5 stocks and hedge funds that were betting on SMAR were disappointed as the stock returned -4.7% since the end of the second quarter (through 11/5) 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 since 2019.

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