Did Hedge Funds Get Texas Roadhouse Inc (TXRH) Right?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Texas Roadhouse Inc (NASDAQ:TXRH) and determine whether hedge funds skillfully traded this stock.

Texas Roadhouse Inc (NASDAQ:TXRH) investors should be aware of a decrease in activity from the world’s largest hedge funds recently. Texas Roadhouse Inc (NASDAQ:TXRH) was in 36 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 37. Our calculations also showed that TXRH 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. Keeping this in mind we’re going to review the new hedge fund action surrounding Texas Roadhouse Inc (NASDAQ:TXRH).

Daniel Sundheim of D1 Capital

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

At the end of September, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TXRH over the last 25 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

More specifically, Melvin Capital Management was the largest shareholder of Texas Roadhouse Inc (NASDAQ:TXRH), with a stake worth $369.9 million reported as of the end of September. Trailing Melvin Capital Management was D1 Capital Partners, which amassed a stake valued at $252.4 million. Melvin Capital Management, AQR Capital Management, and GLG Partners 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 Masterton Capital Management allocated the biggest weight to Texas Roadhouse Inc (NASDAQ:TXRH), around 3.46% of its 13F portfolio. Kehrs Ridge Capital is also relatively very bullish on the stock, setting aside 1.92 percent of its 13F equity portfolio to TXRH.

Because Texas Roadhouse Inc (NASDAQ:TXRH) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedgies who were dropping their positions entirely heading into Q4. Interestingly, Gregg Moskowitz’s Interval Partners dumped the largest position of the 750 funds tracked by Insider Monkey, valued at an estimated $32.6 million in stock. Elise Di Vincenzo Crumbine’s fund, Stormborn Capital Management, also said goodbye to its stock, about $5.8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 1 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Texas Roadhouse Inc (NASDAQ:TXRH). We will take a look at Petco Health and Wellness Company, Inc. (NASDAQ:WOOF), Stag Industrial Inc (NYSE:STAG), Inspire Medical Systems, Inc. (NYSE:INSP), CCC Intelligent Solutions Holdings Inc. (NYSE:CCCS), iQIYI, Inc. (NASDAQ:IQ), Kingsoft Cloud Holdings Limited (NASDAQ:KC), and HUTCHMED (China) Limited (NASDAQ:HCM). This group of stocks’ market valuations resemble TXRH’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.6 hedge funds with bullish positions and the average amount invested in these stocks was $258 million. That figure was $993 million in TXRH’s case. Inspire Medical Systems, Inc. (NYSE:INSP) is the most popular stock in this table. On the other hand HUTCHMED (China) Limited (NASDAQ:HCM) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Texas Roadhouse Inc (NASDAQ:TXRH) is more popular among hedge funds. Our overall hedge fund sentiment score for TXRH is 83.2. 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, TXRH wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on TXRH were disappointed as the stock returned -6.1% 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.