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Were Hedge Funds Right About Crowding Into DocuSign, Inc. (DOCU)?

Abigail Fisher
·6 min read

Keeping this in mind, let's analyze whether DocuSign, Inc. (NASDAQ:DOCU) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

DocuSign, Inc. (NASDAQ:DOCU) shareholders have witnessed an increase in hedge fund interest recently. DocuSign, Inc. (NASDAQ:DOCU) was in 57 hedge funds' portfolios at the end of June. The all time high for this statistics is 47. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 47 hedge funds in our database with DOCU positions at the end of the first quarter. Our calculations also showed that DOCU isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

Today there are a multitude of metrics shareholders put to use to appraise publicly traded companies. A duo of the most under-the-radar metrics are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the best picks of the top hedge fund managers can outperform their index-focused peers by a very impressive margin (see the details here).

COATUE MANAGEMENT
COATUE MANAGEMENT

Philippe Laffont of Coatue Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now we're going to take a gander at the recent hedge fund action regarding DocuSign, Inc. (NASDAQ:DOCU).

Hedge fund activity in DocuSign, Inc. (NASDAQ:DOCU)

At the end of the second quarter, a total of 57 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in DOCU over the last 20 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Alex Sacerdote's Whale Rock Capital Management has the most valuable position in DocuSign, Inc. (NASDAQ:DOCU), worth close to $541.6 million, accounting for 4.3% of its total 13F portfolio. On Whale Rock Capital Management's heels is D E Shaw, managed by D. E. Shaw, which holds a $374 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism include Robert Joseph Caruso's Select Equity Group, David Goel and Paul Ferri's Matrix Capital Management and Gabriel Plotkin's Melvin Capital Management. In terms of the portfolio weights assigned to each position Cota Capital allocated the biggest weight to DocuSign, Inc. (NASDAQ:DOCU), around 11.4% of its 13F portfolio. Cowbird Capital is also relatively very bullish on the stock, setting aside 6.87 percent of its 13F equity portfolio to DOCU.

As industrywide interest jumped, key hedge funds have been driving this bullishness. Select Equity Group, managed by Robert Joseph Caruso, established the biggest position in DocuSign, Inc. (NASDAQ:DOCU). Select Equity Group had $282.5 million invested in the company at the end of the quarter. Gabriel Plotkin's Melvin Capital Management also made a $214.6 million investment in the stock during the quarter. The following funds were also among the new DOCU investors: Philippe Laffont's Coatue Management, Christopher Lyle's SCGE Management, and Israel Englander's Millennium Management.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as DocuSign, Inc. (NASDAQ:DOCU) but similarly valued. We will take a look at Splunk Inc (NASDAQ:SPLK), Orange SA (NYSE:ORAN), Phillips 66 (NYSE:PSX), Mizuho Financial Group Inc. (NYSE:MFG), O'Reilly Automotive Inc (NASDAQ:ORLY), Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), and Southern Copper Corporation (NYSE:SCCO). This group of stocks' market values are closest to DOCU's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SPLK,49,874330,12 ORAN,3,6480,-2 PSX,42,362906,-1 MFG,8,17393,2 ORLY,61,2930519,1 ERIC,23,400790,3 SCCO,19,222306,0 Average,29.3,687818,2.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.3 hedge funds with bullish positions and the average amount invested in these stocks was $688 million. That figure was $2586 million in DOCU's case. O'Reilly Automotive Inc (NASDAQ:ORLY) is the most popular stock in this table. On the other hand Orange SA (NYSE:ORAN) is the least popular one with only 3 bullish hedge fund positions. DocuSign, Inc. (NASDAQ:DOCU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DOCU is 86.6. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 29.2% in 2020 through October 16th and still beat the market by 19.7 percentage points. Hedge funds were also right about betting on DOCU as the stock returned 36.2% since the end of Q2 (through 10/16) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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