Is Inovalon Holdings Inc (INOV) A Good Stock To Buy?

Abigail Fisher

Sat, Oct 26, 2019, 7:39 PM

Is Inovalon Holdings Inc (NASDAQ:INOV) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Inovalon Holdings Inc (NASDAQ:INOV) a great stock to buy now? Hedge funds are becoming less confident. The number of long hedge fund bets shrunk by 2 in recent months. Our calculations also showed that INOV isn't among the 30 most popular stocks among hedge funds (see the video below). INOV was in 7 hedge funds' portfolios at the end of the second quarter of 2019. There were 9 hedge funds in our database with INOV positions at the end of the previous quarter.

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are plenty of gauges market participants put to use to value stocks. Some of the most useful gauges are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the best picks of the best fund managers can outpace the broader indices by a significant amount (see the details here).

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the new hedge fund action encompassing Inovalon Holdings Inc (NASDAQ:INOV).

How are hedge funds trading Inovalon Holdings Inc (NASDAQ:INOV)?

At Q2's end, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards INOV over the last 16 quarters. With the smart money's sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Millennium Management, managed by Israel Englander, holds the largest position in Inovalon Holdings Inc (NASDAQ:INOV). Millennium Management has a $6.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is D E Shaw, managed by D. E. Shaw, which holds a $4.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers that hold long positions encompass Ken Griffin's Citadel Investment Group, Cliff Asness's AQR Capital Management and Joel Greenblatt's Gotham Asset Management.

Since Inovalon Holdings Inc (NASDAQ:INOV) has witnessed a decline in interest from the smart money, we can see that there was a specific group of funds who sold off their entire stakes in the second quarter. It's worth mentioning that Steve Cohen's Point72 Asset Management dropped the largest position of the 750 funds tracked by Insider Monkey, valued at about $9.2 million in stock, and Peter Muller's PDT Partners was right behind this move, as the fund dumped about $0.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 2 funds in the second quarter.

Let's now review hedge fund activity in other stocks similar to Inovalon Holdings Inc (NASDAQ:INOV). We will take a look at LCI Industries (NYSE:LCII), WSFS Financial Corporation (NASDAQ:WSFS), RH (NYSE:RH), and Genomic Health, Inc. (NASDAQ:GHDX). This group of stocks' market values resemble INOV's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LCII,10,77218,2 WSFS,15,164450,-5 RH,28,391899,-8 GHDX,18,880407,-7 Average,17.75,378494,-4.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $378 million. That figure was $17 million in INOV's case. RH (NYSE:RH) is the most popular stock in this table. On the other hand LCI Industries (NYSE:LCII) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Inovalon Holdings Inc (NASDAQ:INOV) is even less popular than LCII. Hedge funds clearly dropped the ball on INOV as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on INOV as the stock returned 13% during the third quarter and outperformed the market by an even larger margin.

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

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