At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards RealPage, Inc. (NASDAQ:RP).
Is RP a good stock to buy now? RealPage, Inc. (NASDAQ:RP) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 39 hedge funds' portfolios at the end of the third quarter of 2020. Our calculations also showed that RP isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). 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 CRISPR Therapeutics AG (NASDAQ:CRSP), Donaldson Company, Inc. (NYSE:DCI), and PLDT Inc. (NYSE:PHI) to gather more data points. Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Ricky Sandler of Eminence Capital
Keeping this in mind we're going to take a gander at the fresh hedge fund action regarding RealPage, Inc. (NASDAQ:RP).
Do Hedge Funds Think RP Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2020. By comparison, 36 hedge funds held shares or bullish call options in RP a year ago. So, let's review 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, Sharlyn C. Heslam's Stockbridge Partners has the largest position in RealPage, Inc. (NASDAQ:RP), worth close to $238.3 million, comprising 6.6% of its total 13F portfolio. The second most bullish fund manager is Eminence Capital, led by Ricky Sandler, holding a $148.2 million position; 1.5% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions contain Greg Poole's Echo Street Capital Management, Ken Griffin's Citadel Investment Group and Robert G. Moses's RGM Capital. In terms of the portfolio weights assigned to each position Banbury Partners allocated the biggest weight to RealPage, Inc. (NASDAQ:RP), around 8.08% of its 13F portfolio. Stockbridge Partners is also relatively very bullish on the stock, designating 6.56 percent of its 13F equity portfolio to RP.
Because RealPage, Inc. (NASDAQ:RP) has experienced falling interest from hedge fund managers, we can see that there exists a select few funds who sold off their full holdings last quarter. At the top of the heap, Israel Englander's Millennium Management sold off the biggest stake of the "upper crust" of funds tracked by Insider Monkey, totaling an estimated $13.5 million in stock, and Michael Platt and William Reeves's BlueCrest Capital Mgmt. was right behind this move, as the fund dropped about $7.3 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to RealPage, Inc. (NASDAQ:RP). These stocks are CRISPR Therapeutics AG (NASDAQ:CRSP), Donaldson Company, Inc. (NYSE:DCI), PLDT Inc. (NYSE:PHI), Darling Ingredients Inc. (NYSE:DAR), Inphi Corporation (NYSE:IPHI), Post Holdings Inc (NYSE:POST), and Tenaris S.A. (NYSE:TS). This group of stocks' market values are similar to RP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CRSP,26,405098,-5 DCI,30,286675,3 PHI,8,95634,3 DAR,31,516814,6 IPHI,34,343353,-12 POST,30,1309099,-4 TS,12,132054,0 Average,24.4,441247,-1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.4 hedge funds with bullish positions and the average amount invested in these stocks was $441 million. That figure was $835 million in RP's case. Inphi Corporation (NYSE:IPHI) is the most popular stock in this table. On the other hand PLDT Inc. (NYSE:PHI) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks RealPage, Inc. (NASDAQ:RP) is more popular among hedge funds. Our overall hedge fund sentiment score for RP is 85. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 33.3% in 2020 through December 18th but still managed to beat the market by 16.4 percentage points. Hedge funds were also right about betting on RP as the stock returned 17.7% since the end of September (through 12/18) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.