Here's Why Conestoga Capital Advisors Decided to Sell Simulations Plus (SLP)

Conestoga Capital Advisors, an asset management company, released its third-quarter 2025 investor letter. A copy of the letter can be downloaded here. Equity markets continued their momentum that began in early April, reaching new all-time highs in the third quarter. In the quarter, the Conestoga Small Cap Composite returned -1.4% net-of-fees, underperforming the Russell 2000 Growth Index’s impressive 12.2% gain. Most of the Index's gains come from low-quality stock leadership, where unprofitable, high-beta names have considerably outperformed. Please check the top 5 holdings of the fund for a better understanding of their best picks for 2025.

In its third-quarter 2025 investor letter, Conestoga Capital Advisors highlighted stocks such as Simulations Plus, Inc. (NASDAQ:SLP). Simulations Plus, Inc. (NASDAQ:SLP) focuses on the development of drug discovery and development software that utilizes artificial intelligence and machine learning based technology for modeling and simulation, and prediction of molecular properties. The one-month return of Simulations Plus, Inc. (NASDAQ:SLP) was 0.98%, and its shares lost 54.90% of their value over the last 52 weeks. On October 17, 2025, Simulations Plus, Inc. (NASDAQ:SLP) stock closed at $15.40 per share, with a market capitalization of $309.957 million.

Conestoga Capital Advisors stated the following regarding Simulations Plus, Inc. (NASDAQ:SLP) in its third quarter 2025 investor letter:

"Simulations Plus, Inc. (NASDAQ:SLP) develops modeling and simulation software used in pharmaceutical drug discovery and development. The company has experienced slowing revenue growth as smaller biotech customers face funding pressures, reducing demand for its tools and services. Valuation remains elevated relative to peers despite moderating growth, raising concerns about risk/reward. Additionally, increased competition in drug-modeling software and uneven performance in consulting services could pressure margins. With near-term headwinds outweighing long-term potential, we decided to sell the stock."

Simulations Plus, Inc. (NASDAQ:SLP) is not on our list of 30 Most Popular Stocks Among Hedge Funds. According to our database, 11 hedge fund portfolios held Simulations Plus, Inc. (NASDAQ:SLP) at the end of the second quarter, compared to 13 at the end of the previous quarter. While we acknowledge the potential of Simulations Plus, Inc. (NASDAQ:SLP) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Simulations Plus, Inc. (NASDAQ:SLP) and shared the list of top medical AI companies to buy according to analysts. In the previous quarter, Conestoga Capital Advisors trimmed its stake in Simulations Plus, Inc. (NASDAQ:SLP) due to below expected preliminary 3Q results and restructuring concerns. In addition, please check out our hedge fund investor letters Q3 2025 page for more investor letters from hedge funds and other leading investors.

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