Were Hedge Funds Right About Dumping Senseonics Holdings, Inc. (SENS) ?

Reymerlyn Martin

Thu, May 9, 2019, 6:20 PM

Does Senseonics Holdings, Inc. (NYSE:SENS) represent a good buying opportunity at the moment? Let’s briefly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

Is Senseonics Holdings, Inc. (NYSE:SENS) a buy right now? Prominent investors are reducing their bets on the stock. The number of long hedge fund bets decreased by 3 lately. Our calculations also showed that SENS isn't among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.

Let's review the key hedge fund action surrounding Senseonics Holdings, Inc. (NYSE:SENS).

How have hedgies been trading Senseonics Holdings, Inc. (NYSE:SENS)?

Heading into the first quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SENS over the last 14 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Prescott Group Capital Management held the most valuable stake in Senseonics Holdings, Inc. (NYSE:SENS), which was worth $1.4 million at the end of the fourth quarter. On the second spot was Point72 Asset Management which amassed $1.3 million worth of shares. Moreover, Sio Capital, Hudson Bay Capital Management, and Wexford Capital were also bullish on Senseonics Holdings, Inc. (NYSE:SENS), allocating a large percentage of their portfolios to this stock.

Due to the fact that Senseonics Holdings, Inc. (NYSE:SENS) has faced falling interest from the smart money, logic holds that there were a few hedgies that slashed their positions entirely last quarter. Interestingly, Josh Goldberg's G2 Investment Partners Management dropped the largest position of all the hedgies watched by Insider Monkey, comprising an estimated $2 million in stock. Bradley Louis Radoff's fund, Fondren Management, also dumped its stock, about $0.9 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 3 funds last quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Senseonics Holdings, Inc. (NYSE:SENS) but similarly valued. We will take a look at Lands' End, Inc. (NASDAQ:LE), BioScrip Inc. (NASDAQ:BIOS), NanoString Technologies Inc (NASDAQ:NSTG), and Secoo Holding Limited (NASDAQ:SECO). All of these stocks' market caps are similar to SENS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LE,13,89765,-1 BIOS,21,111803,3 NSTG,15,93473,-1 SECO,2,10897,-3 Average,12.75,76485,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $7 million in SENS's case. BioScrip Inc. (NASDAQ:BIOS) is the most popular stock in this table. On the other hand Secoo Holding Limited (NASDAQ:SECO) is the least popular one with only 2 bullish hedge fund positions. Senseonics Holdings, Inc. (NYSE:SENS) is not the most popular stock in this group but hedge fund interest is still above average. 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately SENS wasn't nearly as popular as these 15 stock and hedge funds that were betting on SENS were disappointed as the stock returned -17% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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

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