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Were Hedge Funds Right About Forma Therapeutics Holdings, Inc. (FMTX)?

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Forma Therapeutics Holdings, Inc. (NASDAQ:FMTX).

Forma Therapeutics Holdings, Inc. (NASDAQ:FMTX) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 17 hedge funds' portfolios at the end of the first quarter of 2021. Our calculations also showed that FMTX isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Camtek LTD. (NASDAQ:CAMT), The Pennant Group, Inc. (NASDAQ:PNTG), and Hawaiian Holdings, Inc. (NASDAQ:HA) to gather more data points.

According to most shareholders, hedge funds are perceived as slow, old financial tools of the past. While there are greater than 8000 funds trading today, Our experts hone in on the crème de la crème of this group, approximately 850 funds. These hedge fund managers manage the majority of the hedge fund industry's total asset base, and by monitoring their best picks, Insider Monkey has unearthed several investment strategies that have historically outstripped Mr. Market. Insider Monkey's flagship short hedge fund strategy outstripped 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 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Felix Baker - Baker Bros.
Felix Baker - Baker Bros.

Felix Baker of Baker Bros.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 recent hedge fund action regarding Forma Therapeutics Holdings, Inc. (NASDAQ:FMTX).

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

At first quarter's end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2020. By comparison, 0 hedge funds held shares or bullish call options in FMTX a year ago. With the smart money's capital changing hands, there exists a select group of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Is FMTX A Good Stock To Buy?
Is FMTX A Good Stock To Buy?

More specifically, RA Capital Management was the largest shareholder of Forma Therapeutics Holdings, Inc. (NASDAQ:FMTX), with a stake worth $252.5 million reported as of the end of March. Trailing RA Capital Management was Cormorant Asset Management, which amassed a stake valued at $132.3 million. Baker Bros. Advisors, Samsara BioCapital, and Logos Capital 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 Samsara BioCapital allocated the biggest weight to Forma Therapeutics Holdings, Inc. (NASDAQ:FMTX), around 8.09% of its 13F portfolio. Logos Capital is also relatively very bullish on the stock, setting aside 3.86 percent of its 13F equity portfolio to FMTX.

Since Forma Therapeutics Holdings, Inc. (NASDAQ:FMTX) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there exists a select few fund managers who were dropping their positions entirely heading into Q2. Interestingly, Jeffrey Jay and David Kroin's Great Point Partners dumped the biggest investment of the 750 funds tracked by Insider Monkey, worth an estimated $8.3 million in stock. Matthew L Pinz's fund, Pinz Capital, also dropped its stock, about $2.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's also examine hedge fund activity in other stocks similar to Forma Therapeutics Holdings, Inc. (NASDAQ:FMTX). We will take a look at Camtek LTD. (NASDAQ:CAMT), The Pennant Group, Inc. (NASDAQ:PNTG), Hawaiian Holdings, Inc. (NASDAQ:HA), City Holding Company (NASDAQ:CHCO), Home Point Capital Inc. (NASDAQ:HMPT), Tootsie Roll Industries, Inc. (NYSE:TR), and Enova International Inc (NYSE:ENVA). This group of stocks' market caps are similar to FMTX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CAMT,12,117423,-3 PNTG,11,28651,1 HA,16,109242,5 CHCO,5,16561,-1 HMPT,13,35611,13 TR,14,34793,0 ENVA,21,251127,1 Average,13.1,84773,2.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.1 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $629 million in FMTX's case. Enova International Inc (NYSE:ENVA) is the most popular stock in this table. On the other hand City Holding Company (NASDAQ:CHCO) is the least popular one with only 5 bullish hedge fund positions. Forma Therapeutics Holdings, Inc. (NASDAQ:FMTX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FMTX is 72.5. 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 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately FMTX wasn't nearly as popular as these 5 stocks and hedge funds that were betting on FMTX were disappointed as the stock returned -12.5% since the end of March (through 7/23) 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.