In this article we will check out the progression of hedge fund sentiment towards Inovalon Holdings Inc (NASDAQ:INOV) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Inovalon Holdings Inc (NASDAQ:INOV) a buy right now? Money managers were in a pessimistic mood. The number of long hedge fund bets dropped by 5 recently. Inovalon Holdings Inc (NASDAQ:INOV) was in 17 hedge funds' portfolios at the end of March. The all time high for this statistic is 22. Our calculations also showed that INOV isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Henrik Rhenman of Rhenman & Partners Asset Management
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. Keeping this in mind let's take a gander at the key hedge fund action regarding Inovalon Holdings Inc (NASDAQ:INOV).
Do Hedge Funds Think INOV Is A Good Stock To Buy Now?
At Q1's end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in INOV a year ago. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
The largest stake in Inovalon Holdings Inc (NASDAQ:INOV) was held by Pura Vida Investments, which reported holding $47.4 million worth of stock at the end of December. It was followed by Arrowstreet Capital with a $14.9 million position. Other investors bullish on the company included Samjo Capital, Pura Vida Investments, and Millennium Management. In terms of the portfolio weights assigned to each position Samjo Capital allocated the biggest weight to Inovalon Holdings Inc (NASDAQ:INOV), around 8.43% of its 13F portfolio. Prosight Capital is also relatively very bullish on the stock, dishing out 2 percent of its 13F equity portfolio to INOV.
Seeing as Inovalon Holdings Inc (NASDAQ:INOV) has experienced a decline in interest from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of fund managers who sold off their entire stakes in the first quarter. Intriguingly, Steve Cohen's Point72 Asset Management cut the biggest stake of the "upper crust" of funds tracked by Insider Monkey, totaling close to $7.7 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund dropped about $5.6 million worth. These moves are important to note, as total hedge fund interest was cut by 5 funds in the first quarter.
Let's now take a look at hedge fund activity in other stocks similar to Inovalon Holdings Inc (NASDAQ:INOV). These stocks are Highwoods Properties Inc (NYSE:HIW), Ortho Clinical Diagnostics Holdings plc (NASDAQ:OCDX), PacWest Bancorp (NASDAQ:PACW), Radian Group Inc (NYSE:RDN), ACI Worldwide Inc (NASDAQ:ACIW), VIZIO Holding Corp. (NYSE:VZIO), and UMB Financial Corporation (NASDAQ:UMBF). All of these stocks' market caps are closest to INOV's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HIW,20,117413,-1 OCDX,23,328347,23 PACW,31,599517,1 RDN,30,436078,-7 ACIW,23,686814,-7 VZIO,19,126361,19 UMBF,13,106723,-7 Average,22.7,343036,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.7 hedge funds with bullish positions and the average amount invested in these stocks was $343 million. That figure was $108 million in INOV's case. PacWest Bancorp (NASDAQ:PACW) is the most popular stock in this table. On the other hand UMB Financial Corporation (NASDAQ:UMBF) is the least popular one with only 13 bullish hedge fund positions. Inovalon Holdings Inc (NASDAQ:INOV) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for INOV is 34.3. 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 28.5% in 2021 through July 23rd and beat the market by 10.1 percentage points. A small number of hedge funds were also right about betting on INOV, though not to the same extent, as the stock returned 15.7% since the end of Q1 (through July 23rd) and outperformed the market.
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Disclosure: None. This article was originally published at Insider Monkey.