Did Hedge Funds Make The Right Call On The Simply Good Foods Company (SMPL) ?

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 The Simply Good Foods Company (NASDAQ:SMPL) based on that data and determine whether they were really smart about the stock.

Is The Simply Good Foods Company (NASDAQ:SMPL) a buy here? Prominent investors were in a pessimistic mood. The number of long hedge fund positions were cut by 15 recently. Our calculations also showed that SMPL 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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.

Philippe Laffont of Coatue Management

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. With all of this in mind we’re going to take a peek at the recent hedge fund action regarding The Simply Good Foods Company (NASDAQ:SMPL).

Hedge fund activity in The Simply Good Foods Company (NASDAQ:SMPL)

At Q1’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -44% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in SMPL over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Lomas Capital Management held the most valuable stake in The Simply Good Foods Company (NASDAQ:SMPL), which was worth $45.1 million at the end of the third quarter. On the second spot was Parian Global Management which amassed $20.6 million worth of shares. Millennium Management, Point72 Asset Management, and Renaissance Technologies 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 Parian Global Management allocated the biggest weight to The Simply Good Foods Company (NASDAQ:SMPL), around 7.24% of its 13F portfolio. Lomas Capital Management is also relatively very bullish on the stock, earmarking 4.49 percent of its 13F equity portfolio to SMPL.

Because The Simply Good Foods Company (NASDAQ:SMPL) has witnessed falling interest from the smart money, it’s safe to say that there exists a select few fund managers that slashed their entire stakes heading into Q4. At the top of the heap, James Woodson Davis’s Woodson Capital Management cut the largest investment of the “upper crust” of funds watched by Insider Monkey, valued at about $37.1 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dumped its stock, about $11.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 15 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to The Simply Good Foods Company (NASDAQ:SMPL). We will take a look at SVMK Inc. (NASDAQ:SVMK), Greif, Inc. (NYSE:GEF), Prestige Consumer Healthcare Inc. (NYSE:PBH), and Denali Therapeutics Inc. (NASDAQ:DNLI). All of these stocks’ market caps are similar to SMPL’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $152 million in SMPL’s case. SVMK Inc. (NASDAQ:SVMK) is the most popular stock in this table. On the other hand Denali Therapeutics Inc. (NASDAQ:DNLI) is the least popular one with only 14 bullish hedge fund positions. The Simply Good Foods Company (NASDAQ:SMPL) is not the least popular stock in this group but hedge fund interest is still below average. 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 but beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on SMPL, though not to the same extent, as the stock returned 26.7% since Q1 and outperformed the market.

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