Is Cardlytics, Inc. (CDLX) A Good Stock To Buy?

·6 min read

In this article we are going to use hedge fund sentiment as a tool and determine whether Cardlytics, Inc. (NASDAQ:CDLX) is a good investment 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 CDLX a good stock to buy? Cardlytics, Inc. (NASDAQ:CDLX) has seen a decrease in hedge fund sentiment in recent months. Cardlytics, Inc. (NASDAQ:CDLX) was in 29 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 38. Our calculations also showed that CDLX isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

To the average investor there are tons of signals investors put to use to appraise their holdings. Some of the less utilized signals are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the best picks of the elite fund managers can trounce their index-focused peers by a significant margin (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

CAS Investment Partners, Cliff Sosin
CAS Investment Partners, Cliff Sosin

Clifford Sosin of CAS Investment Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 we're going to take a peek at the latest hedge fund action regarding Cardlytics, Inc. (NASDAQ:CDLX).

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

At Q2's end, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -24% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards CDLX over the last 24 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

More specifically, CAS Investment Partners was the largest shareholder of Cardlytics, Inc. (NASDAQ:CDLX), with a stake worth $569.8 million reported as of the end of June. Trailing CAS Investment Partners was Alua Capital Management, which amassed a stake valued at $157.9 million. 683 Capital Partners, Antipodean Advisors, and JS 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 CAS Investment Partners allocated the biggest weight to Cardlytics, Inc. (NASDAQ:CDLX), around 24.24% of its 13F portfolio. Antipodean Advisors is also relatively very bullish on the stock, designating 22.33 percent of its 13F equity portfolio to CDLX.

Judging by the fact that Cardlytics, Inc. (NASDAQ:CDLX) has faced falling interest from the aggregate hedge fund industry, we can see that there were a few hedge funds who were dropping their positions entirely in the second quarter. It's worth mentioning that Seymour Sy Kaufman and Michael Stark's Crosslink Capital dumped the largest position of the 750 funds monitored by Insider Monkey, comprising an estimated $9.2 million in stock. Kevin Mok's fund, Hidden Lake Asset Management, also dropped its stock, about $9.1 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 9 funds in the second quarter.

Let's check out hedge fund activity in other stocks similar to Cardlytics, Inc. (NASDAQ:CDLX). We will take a look at HUYA Inc. (NYSE:HUYA), Grand Canyon Education Inc (NASDAQ:LOPE), National Vision Holdings, Inc. (NASDAQ:EYE), Madison Square Garden Sports Corp. (NYSE:MSGS), Box, Inc. (NYSE:BOX), EnerSys (NYSE:ENS), and Axis Capital Holdings Limited (NYSE:AXS). This group of stocks' market values are similar to CDLX's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HUYA,11,89812,-2 LOPE,25,173874,1 EYE,19,356510,-5 MSGS,37,954653,-10 BOX,35,754875,-8 ENS,19,201671,-9 AXS,19,609412,-4 Average,23.6,448687,-5.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.6 hedge funds with bullish positions and the average amount invested in these stocks was $449 million. That figure was $1183 million in CDLX's case. Madison Square Garden Sports Corp. (NYSE:MSGS) is the most popular stock in this table. On the other hand HUYA Inc. (NYSE:HUYA) is the least popular one with only 11 bullish hedge fund positions. Cardlytics, Inc. (NASDAQ:CDLX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CDLX is 53.5. 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 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately CDLX wasn't nearly as popular as these 5 stocks and hedge funds that were betting on CDLX were disappointed as the stock returned -33.7% since the end of June (through 10/15) 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.

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