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Is Tyler Technologies, Inc. (TYL) Going to Burn These Hedge Funds?

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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Tyler Technologies, Inc. (NYSE:TYL).

Is Tyler Technologies, Inc. (NYSE:TYL) an exceptional investment now? Hedge funds were taking a bullish view. The number of long hedge fund positions moved up by 5 recently. Tyler Technologies, Inc. (NYSE:TYL) was in 33 hedge funds' portfolios at the end of June. The all time high for this statistic is 36. Our calculations also showed that TYL isn't among the 30 most popular stocks among hedge funds (click for Q2 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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Kevin Oram Praesidium Investment Management
Kevin Oram Praesidium Investment Management

Kevin Oram of Praesidium Investment Management Company

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. With all of this in mind we're going to take a peek at the recent hedge fund action regarding Tyler Technologies, Inc. (NYSE:TYL).

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

At the end of June, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the first quarter of 2020. By comparison, 36 hedge funds held shares or bullish call options in TYL a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Echo Street Capital Management, managed by Greg Poole, holds the largest position in Tyler Technologies, Inc. (NYSE:TYL). Echo Street Capital Management has a $167.1 million position in the stock, comprising 1.3% of its 13F portfolio. Coming in second is Praesidium Investment Management Company, managed by Kevin Oram and Peter Uddo, which holds a $105.3 million position; 5.6% of its 13F portfolio is allocated to the stock. Remaining professional money managers that are bullish include Jaime Sterne's Skye Global Management, Robert G. Moses's RGM Capital and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Praesidium Investment Management Company allocated the biggest weight to Tyler Technologies, Inc. (NYSE:TYL), around 5.62% of its 13F portfolio. RGM Capital is also relatively very bullish on the stock, setting aside 4.03 percent of its 13F equity portfolio to TYL.

As industrywide interest jumped, some big names have jumped into Tyler Technologies, Inc. (NYSE:TYL) headfirst. Waratah Capital Advisors, managed by Brad Dunkley and Blair Levinsky, established the most outsized position in Tyler Technologies, Inc. (NYSE:TYL). Waratah Capital Advisors had $28.7 million invested in the company at the end of the quarter. Frank Fu's CaaS Capital also made a $20.6 million investment in the stock during the quarter. The following funds were also among the new TYL investors: Brandon Haley's Holocene Advisors, Steve Cohen's Point72 Asset Management, and Dmitry Balyasny's Balyasny Asset Management.

Let's now review hedge fund activity in other stocks similar to Tyler Technologies, Inc. (NYSE:TYL). These stocks are Catalent Inc (NYSE:CTLT), Pool Corporation (NASDAQ:POOL), PagSeguro Digital Ltd. (NYSE:PAGS), Genuine Parts Company (NYSE:GPC), NetApp Inc. (NASDAQ:NTAP), Domino's Pizza, Inc. (NYSE:DPZ), and NVR, Inc. (NYSE:NVR). This group of stocks' market valuations match TYL's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CTLT,40,870986,11 POOL,40,1025705,-1 PAGS,40,2390344,7 GPC,29,418026,3 NTAP,31,437722,5 DPZ,31,2494688,2 NVR,28,1093288,-11 Average,34.1,1247251,2.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.1 hedge funds with bullish positions and the average amount invested in these stocks was $1247 million. That figure was $731 million in TYL's case. Catalent Inc (NYSE:CTLT) is the most popular stock in this table. On the other hand NVR, Inc. (NYSE:NVR) is the least popular one with only 28 bullish hedge fund positions. Tyler Technologies, Inc. (NYSE:TYL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TYL is 58.3. 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 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. A small number of hedge funds were also right about betting on TYL as the stock returned 11.3% since the end of the second quarter (through 10/15) and outperformed the market by an even larger margin.

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

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