Did Hedge Funds Make The Right Call On Ollie’s Bargain Outlet Holdings Inc (OLLI) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI) based on that data and determine whether they were really smart about the stock.

Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI) was in 19 hedge funds’ portfolios at the end of March. OLLI investors should be aware of a decrease in hedge fund sentiment in recent months. There were 28 hedge funds in our database with OLLI positions at the end of the previous quarter. Our calculations also showed that OLLI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Louis Bacon Moore of Moore Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to take a peek at the latest hedge fund action regarding Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI).

How have hedgies been trading Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI)?

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -32% from the fourth quarter of 2019. By comparison, 22 hedge funds held shares or bullish call options in OLLI a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

The largest stake in Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI) was held by Citadel Investment Group, which reported holding $32.7 million worth of stock at the end of September. It was followed by Akre Capital Management with a $23.2 million position. Other investors bullish on the company included Shellback Capital, Schonfeld Strategic Advisors, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Shellback Capital allocated the biggest weight to Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI), around 3.03% of its 13F portfolio. Intrepid Capital Management is also relatively very bullish on the stock, earmarking 0.9 percent of its 13F equity portfolio to OLLI.

Because Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there were a few hedge funds that slashed their entire stakes heading into Q4. Intriguingly, Paolo Mortarotti’s Tower House Partners dropped the biggest stake of the 750 funds watched by Insider Monkey, comprising about $35.9 million in stock. Steven Boyd’s fund, Armistice Capital, also dropped its stock, about $7 million worth. These moves are interesting, as total hedge fund interest was cut by 9 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI). We will take a look at Iridium Communications Inc. (NASDAQ:IRDM), Advanced Disposal Services, Inc. (NYSE:ADSW), KBR, Inc. (NYSE:KBR), and Noble Energy, Inc. (NYSE:NBL). This group of stocks’ market valuations are similar to OLLI’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $444 million. That figure was $96 million in OLLI’s case. Noble Energy, Inc. (NYSE:NBL) is the most popular stock in this table. On the other hand Iridium Communications Inc. (NASDAQ:IRDM) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI) is even less popular than IRDM. Hedge funds clearly dropped the ball on OLLI as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on OLLI as the stock returned 132.6% since the end of March and outperformed the market by an even larger margin.

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