Helen of Troy Limited (NASDAQ:HELE) has posted its financial results for the company’s fiscal first quarter of 2016 that ended on May 31, coming up short of Wall Street’s expectations on earnings, though it did beat revenue estimates. The Street expected Helen of Troy Limited (NASDAQ:HELE) to post earnings of $1.10 per share, but the company missed the Thomson Reuters consensus expectation by $0.04, reporting a non-GAAP adjusted EPS of $1.06 for the quarter. The consumer product company reported revenue of $345.3 million, 2.2% more than the consensus estimate of $337.7 million for the quarter. During the same period a year ago, Helen of Troy Limited (NASDAQ:HELE) posted an EPS of $0.83 and revenue of $311.8 million, missing the consensus expectations on both fronts. Helen of Troy has also issued full year earnings guidance in the range of $5.40 to $5.85 per share and revenues guidance in the range of $1.49 billion to $1.54 billion. Helen of Troy Limited (NASDAQ:HELE)’s shares dropped by 5.33% in after-hours trading following the earnings miss. Among analysts who have commented on the stock recently, Piper Jaffray set a price target of $100 on the stock with a ‘Buy’ rating in May, while Zacks upgraded the stock to ‘Strong Buy’ from a ‘Hold’ rating, with a price target of $101, also in May.
Hedge funds appear to be the only ones who felt the trading on Helen of Troy was overcooked, and they were right, at least in terms of the company’s earnings results. By the end of March, there were ten hedge funds holding long positions in Helen of Troy Limited (NASDAQ:HELE), with around $14.03 million in shares. This number was reduced significantly from the end of 2014, when the stock had 14 hedge funds holding $16.9 million in shares. And while the aggregate capital invested in the stock by hedge funds fell by 17% in the first quarter, it’s even more notable considering that the stock also gained more than 24% during the same period. This shows that smart money was extremely bearish on the stock heading into the second quarter. Nonetheless, Helen of Troy has been a strong performer, and is still up by over 18% since the end of the first quarter, even factoring in today’s losses, so though the smart money may have been right on the performance of the company, they were not right on its stock performance.
Most investors don’t understand hedge funds and indicators that are based on hedge fund and insider activity. They ignore hedge funds because of their recent poor performance in the long-running bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns enjoyed (or not) by investors. We uncovered through extensive research that hedge funds’ long positions in small-cap stocks actually greatly outperformed the market from 1999 to 2012, and built a system around this. The 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 80 percentage points since the end of August 2012 when this system went live, returning a cumulative 135% vs. less than 55% for the S&P 500 Index (read the details).
Likewise, other research (not our own) has shown insider purchases are also effective piggybacking methods for investors. That’s why we believe investors should pay attention to what hedge funds and insiders are buying and keep them apprised of this information. There have been no insider purchases of this stock in 2015, but there have been quite a few insider sales during the first half of this year. Director at Helen of Troy Limited (NASDAQ:HELE), Darren Woody sold 8,200 shares in May, while COO Thomas Benson sold 12,500 shares, also in May.
With all of this in mind, we’re going to analyze the key hedge fund activity on Helen of Troy Limited (NASDAQ:HELE).
What does the smart money think about Helen of Troy Limited (NASDAQ:HELE)?
According to Insider Monkey’s database, Cliff Asness‘ AQR Capital Management holds the largest position in Helen of Troy Limited (NASDAQ:HELE), with 77,107 shares worth close to $6.3 million at the end of first trimester. Following Cliff Asness is Whitebox Advisors, managed by Andy Redleaf, with around 30,000 shares valued at $2.4 million. Remaining hedgies that are bullish contain Peter Keane’s Keane Capital Management, Joel Greenblatt’s Gotham Asset Management, and Ken Griffin’s Citadel Investment Group.
Seeing as Helen of Troy Limited (NASDAQ:HELE) has faced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few hedge fund managers who sold off their entire stake in the company during the first quarter. The largest discarded position was sold by Roger Ibbotson‘s Zebra Capital Management, which sold around 38,000 shares of the company in the first quarter. Israel Englander‘s fund, Millennium Management, also sold around 31,000 shares in the first three months of the year.
Even bullish analyst calls have Helen of Troy already trading close to its price target. Given the missed earnings and very bearish sentiment among the best money managers in the world on top of that, we do not recommend buying this stock.
Disclosure: None
