Did Hedge Funds Get Papa John’s International, Inc. (PZZA) Right?

Stocks, especially the once high flying technology stocks, had a lousy start to the new year. QQQ lost 9% of its value in January. We aren’t certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards Papa John’s International, Inc. (NASDAQ:PZZA) at the end of the third quarter and determine whether the smart money was really smart about this stock.

Papa John’s International, Inc. (NASDAQ:PZZA) shareholders have witnessed an increase in hedge fund interest lately. Papa John’s International, Inc. (NASDAQ:PZZA) was in 33 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 38. Our calculations also showed that PZZA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. With all of this in mind we’re going to take a look at the fresh hedge fund action surrounding Papa John’s International, Inc. (NASDAQ:PZZA).

Jeffrey Smith of Starboard Value LP

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

At third quarter’s end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the second quarter of 2021. By comparison, 38 hedge funds held shares or bullish call options in PZZA a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Among these funds, Starboard Value LP held the most valuable stake in Papa John’s International, Inc. (NASDAQ:PZZA), which was worth $350.4 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $97.6 million worth of shares. Citadel Investment Group, Millennium Management, and PEAK6 Capital 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 Starboard Value LP allocated the biggest weight to Papa John’s International, Inc. (NASDAQ:PZZA), around 6.41% of its 13F portfolio. 13D Management is also relatively very bullish on the stock, earmarking 5.79 percent of its 13F equity portfolio to PZZA.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, assembled the most valuable position in Papa John’s International, Inc. (NASDAQ:PZZA). Point72 Asset Management had $13.1 million invested in the company at the end of the quarter. John Brennan’s Sirios Capital Management also made a $12.7 million investment in the stock during the quarter. The other funds with brand new PZZA positions are Lee Ainslie’s Maverick Capital, Dmitry Balyasny’s Balyasny Asset Management, and Gabriel Plotkin’s Melvin Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Papa John’s International, Inc. (NASDAQ:PZZA). These stocks are Shell Midstream Partners LP (NYSE:SHLX), The Hanover Insurance Group, Inc. (NYSE:THG), FTI Consulting, Inc. (NYSE:FCN), Ryman Hospitality Properties, Inc. (NYSE:RHP), Abcam plc (NASDAQ:ABCM), Flywire Corporation (NASDAQ:FLYW), and Wintrust Financial Corporation (NASDAQ:WTFC). This group of stocks’ market valuations match PZZA’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.3 hedge funds with bullish positions and the average amount invested in these stocks was $159 million. That figure was $745 million in PZZA’s case. FTI Consulting, Inc. (NYSE:FCN) is the most popular stock in this table. On the other hand Abcam plc (NASDAQ:ABCM) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Papa John’s International, Inc. (NASDAQ:PZZA) is more popular among hedge funds. Our overall hedge fund sentiment score for PZZA is 84.1. 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 29.6% in 2021 and still beat the market by 3.6 percentage points. Unfortunately, PZZA wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on PZZA were disappointed as the stock returned -2.5% since the end of the third quarter (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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