Is it a good time to sell your Gaotu Techedu (GOTU) position?
Bireme Capital, an investment management firm, has released its Q3 2021 letter to investors – a copy of which can be viewed here. A net portfolio return of 9.1% was delivered by the fund for the third quarter of 2021, largely eclipsing the 0.6% return of the S&P 500. You can check out the top 5 holdings of the fund to get an idea of their. top picks for 2021.
Bireme Capital, in its letter to investors for the third quarter of 2021, mentioned Gaotu Techedu Inc. (NYSE: GOTU) and discussed its position on the company. Gaotu Techedu Inc. is a China-based exam preparation and tutoring company with a market capitalization of $ 756.3 million. GOTU has returned -94.30% year-to-date, while its 12-month returns are down -95.70%. The stock closed at $ 2.95 per share on November 2, 2021.
Here is what Bireme Capital has to say about Gaotu Techedu Inc. in its letter to investors Q3 2021:
“GSX (now GOTU), a Chinese education company accused of falsifying the majority of its online customer base, has seen its share price drop from $ 50 to $ 140 in 2021 to less than $ 4 today. The plunge began in early March, when GSX announced results that included a larger quarterly loss and second-quarter revenue forecast 30% lower than Wall Street forecast.
Then, weeks later, rumors surfaced of an impending regulatory crackdown on for-profit education companies in China. At the same time, one of their main shareholders, Archegos Capital Management, collapsed. Archegos’ margin calls forced their brokers to sell massive blocks of shares in various tech and media stocks, including GSX, which appears to have accelerated the price decline. – for-profit extracurricular tutoring. “
Photo by Jerry Wang on Unsplash
Based on our calculations, Gaotu Techedu Inc. (NYSE: GOTU) was unable to secure a spot on our list of the 30 most popular stocks among hedge funds. I UNDERSTOOD YOU was in 11 hedge fund portfolios at the end of the first half of 2021, compared to 30 funds in the previous quarter. Gaotu Techedu Inc. (NYSE: GOTU) generated a return of -20.49% in the last 3 months.
The reputation of hedge funds as savvy investors has been tarnished over the past decade, as their hedged returns could not keep up with the unhedged returns of stock indices. Our research has shown that small-cap hedge fund stock selection managed to beat the market by double digits every year between 1999 and 2016, but the margin for outperformance has shrunk in recent years. Nonetheless, we were still able to identify in advance a select group of hedge funds that have outperformed S&P 500 ETFs by 115 percentage points since March 2017 (see details here). We were also able to identify in advance a select group of hedge funds that underperformed the market by 10 percentage points per year between 2006 and 2017. Interestingly, the margin of underperformance of these stocks has increased in recent years. Investors who are long in the market and short on these stocks would have reported more than 27% per year between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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Disclosure: none. This article originally appeared on Insider Monkey.