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Were Expert Investors Right About Evolent Health Inc (EVH)?

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Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the third quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of Evolent Health Inc (NYSE:EVH) based on that data and determine whether they were really smart about the stock.

Is Evolent Health Inc (NYSE:EVH) a buy, sell, or hold? Money managers were taking an optimistic view. The number of bullish hedge fund positions advanced by 9 in recent months. Evolent Health Inc (NYSE:EVH) was in 33 hedge funds' portfolios at the end of the third quarter of 2021. The all time high for this statistic was previously 24. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that EVH isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 24 hedge funds in our database with EVH positions at the end of the second quarter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Now we're going to review the recent hedge fund action surrounding Evolent Health Inc (NYSE:EVH).

Glenn Welling Engaged Capital
Glenn Welling Engaged Capital

Glenn Welling of Engaged Capital

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

At the end of the third quarter, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 38% from the second quarter of 2021. Below, you can check out the change in hedge fund sentiment towards EVH over the last 25 quarters. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Among these funds, Engaged Capital held the most valuable stake in Evolent Health Inc (NYSE:EVH), which was worth $244.7 million at the end of the third quarter. On the second spot was Rock Springs Capital Management which amassed $58.1 million worth of shares. Greenhouse Funds, Sectoral Asset Management, and Park West Asset 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 Engaged Capital allocated the biggest weight to Evolent Health Inc (NYSE:EVH), around 17.58% of its 13F portfolio. 13D Management is also relatively very bullish on the stock, designating 5.91 percent of its 13F equity portfolio to EVH.

Consequently, specific money managers have jumped into Evolent Health Inc (NYSE:EVH) headfirst. Point72 Asset Management, managed by Steve Cohen, assembled the biggest position in Evolent Health Inc (NYSE:EVH). Point72 Asset Management had $13.1 million invested in the company at the end of the quarter. Carl Tiedemann and Michael Tiedemann's TIG Advisors also initiated a $11.7 million position during the quarter. The other funds with brand new EVH positions are Joseph Samuels's Islet Management, OrbiMed Advisors, and Efrem Kamen's Pura Vida Investments.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Evolent Health Inc (NYSE:EVH) but similarly valued. These stocks are Mercury Systems Inc (NASDAQ:MRCY), Trinity Industries, Inc. (NYSE:TRN), Emergent Biosolutions Inc (NYSE:EBS), Flagstar Bancorp Inc (NYSE:FBC), Gentherm Inc (NASDAQ:THRM), Crescent Point Energy Corp (NYSE:CPG), and Lithium Americas Corp. (NYSE:LAC). This group of stocks' market caps match EVH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MRCY,21,112589,10 TRN,17,649277,-3 EBS,16,82732,1 FBC,25,296204,0 THRM,18,165695,0 CPG,11,108975,-2 LAC,12,94159,3 Average,17.1,215662,1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.1 hedge funds with bullish positions and the average amount invested in these stocks was $216 million. That figure was $540 million in EVH's case. Flagstar Bancorp Inc (NYSE:FBC) is the most popular stock in this table. On the other hand Crescent Point Energy Corp (NYSE:CPG) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Evolent Health Inc (NYSE:EVH) is more popular among hedge funds. Our overall hedge fund sentiment score for EVH is 90. 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 and still beat the market by 3.6 percentage points. Unfortunately, EVH wasn't nearly as popular as these 5 stocks and hedge funds that were betting on EVH were disappointed as the stock returned -23.5% since the end of the third quarter (through 1/31) 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 all of these stocks already outperformed the market since 2019.

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