Hedge Funds Are Piling Into Digital Turbine Inc (APPS)

·6 min read

With the second-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the third quarter of 2021. One of these stocks was Digital Turbine Inc (NASDAQ:APPS).

Is Digital Turbine Inc (NASDAQ:APPS) the right pick for your portfolio? Prominent investors were in a bullish mood. The number of bullish hedge fund positions inched up by 8 lately. Digital Turbine Inc (NASDAQ:APPS) was in 30 hedge funds' portfolios at the end of June. The all time high for this statistic was previously 23. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that APPS isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 79 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.

Peter Rathjens Arrowstreet Capital 394
Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

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 let's take a gander at the fresh hedge fund action encompassing Digital Turbine Inc (NASDAQ:APPS).

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

At Q2's end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 36% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in APPS a year ago. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

More specifically, Greenhaven Road Investment Management was the largest shareholder of Digital Turbine Inc (NASDAQ:APPS), with a stake worth $85.6 million reported as of the end of June. Trailing Greenhaven Road Investment Management was Arrowstreet Capital, which amassed a stake valued at $72.9 million. D E Shaw, Citadel Investment Group, and Collaborative Holdings Management 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 Greenhaven Road Investment Management allocated the biggest weight to Digital Turbine Inc (NASDAQ:APPS), around 17.54% of its 13F portfolio. Collaborative Holdings Management is also relatively very bullish on the stock, setting aside 12.41 percent of its 13F equity portfolio to APPS.

Consequently, key hedge funds were breaking ground themselves. Collaborative Holdings Management, managed by Sheetal Sharma, created the largest position in Digital Turbine Inc (NASDAQ:APPS). Collaborative Holdings Management had $25.7 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $15.8 million position during the quarter. The other funds with new positions in the stock are Michael Gelband's ExodusPoint Capital, Dmitry Balyasny's Balyasny Asset Management, and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Digital Turbine Inc (NASDAQ:APPS) but similarly valued. These stocks are Ascendis Pharma A/S (NASDAQ:ASND), Brooks Automation, Inc. (NASDAQ:BRKS), Freshpet Inc (NASDAQ:FRPT), Harley-Davidson, Inc. (NYSE:HOG), Mattel, Inc. (NASDAQ:MAT), First Financial Bankshares Inc (NASDAQ:FFIN), and Cabot Oil & Gas Corporation (NYSE:COG). This group of stocks' market caps are closest to APPS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ASND,29,2290305,1 BRKS,32,510367,7 FRPT,28,270573,9 HOG,37,1121681,9 MAT,25,928960,0 FFIN,8,25565,-3 COG,25,348750,5 Average,26.3,785172,4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.3 hedge funds with bullish positions and the average amount invested in these stocks was $785 million. That figure was $326 million in APPS's case. Harley-Davidson, Inc. (NYSE:HOG) is the most popular stock in this table. On the other hand First Financial Bankshares Inc (NASDAQ:FFIN) is the least popular one with only 8 bullish hedge fund positions. Digital Turbine Inc (NASDAQ:APPS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for APPS is 77.9. 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 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. Hedge funds were also right about betting on APPS as the stock returned 11.4% since the end of Q2 (through 10/15) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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