Groupon Inc (GRPN) and More: Tiger Global Management’s Small Cap Picks

Tiger Global Management, a Tiger Cub hedge fund which counts billionaire Chase Coleman among its managers, filed its 13F with the SEC in mid May. We have found that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year- defining small cap stocks as those with market capitalizations between $1 billion and $5 billion- and in fact our live testing of this strategy has returned 38% since we began tracking it in September 2012. We think that small cap picks from individual funds such as Tiger Global can also serve as useful sources of investment ideas, with investors doing further research on any interesting names. Read on for our quick take on Tiger Global’s five largest small cap holdings by market value as of the end of March and compare these picks to those in the fund’s previous filings.

One of Tiger Global’s top picks overall was Groupon Inc (NASDAQ:GRPN), with the filing showing a position of 65 million shares. Even after its recent rally, Groupon is still down 33% from its levels a year ago; the company is barely profitable, and revenue growth numbers have not been good. Analysts are expecting improvements on the bottom line in 2014 but with the stock still being valued at 25 times forward earnings estimates- and therefore dependent on high growth from that point- we are skeptical that Groupon deserves its current valuation. Barry Rosenstein’s JANA Partners was buying the stock during Q1 (see more of Rosenstein’s stock picks).

The fund bought 2.9 million shares of Carter’s, Inc. (NYSE:CRI), the children’s apparel designer and retailer which also owns the OshKosh brand, after not having owned any shares at the beginning of 2013. Carter’s is another stock which is well out of pure value territory, with trailing and forward P/Es of 25 and 18 respectively. While earnings have recently been up strongly, revenue grew only 7% last quarter compared to the first quarter of 2012, and that growth rate would likely have to pick up in order for Carter’s to turn out to be undervalued.