Hedge Funds Are Crazy About e.l.f. Beauty, Inc. (ELF)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded e.l.f. Beauty, Inc. (NYSE:ELF) and determine whether the smart money was really smart about this stock.

e.l.f. Beauty, Inc. (NYSE:ELF) investors should pay attention to an increase in support from the world’s most elite money managers lately. e.l.f. Beauty, Inc. (NYSE:ELF) was in 22 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 24. Our calculations also showed that ELF isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Richard Driehaus of Driehaus Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to analyze the new hedge fund action regarding e.l.f. Beauty, Inc. (NYSE:ELF).

Hedge fund activity in e.l.f. Beauty, Inc. (NYSE:ELF)

At the end of June, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the previous quarter. By comparison, 18 hedge funds held shares or bullish call options in ELF a year ago. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mario Cibelli’s Marathon Partners has the largest position in e.l.f. Beauty, Inc. (NYSE:ELF), worth close to $44.8 million, accounting for 20.7% of its total 13F portfolio. Coming in second is Renaissance Technologies, with a $35.5 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other peers that are bullish consist of Angela Aldrich’s Bayberry Capital Partners, Richard Driehaus’s Driehaus Capital and George McCabe’s Portolan Capital Management. In terms of the portfolio weights assigned to each position Marathon Partners allocated the biggest weight to e.l.f. Beauty, Inc. (NYSE:ELF), around 20.71% of its 13F portfolio. Bayberry Capital Partners is also relatively very bullish on the stock, designating 6.26 percent of its 13F equity portfolio to ELF.

As aggregate interest increased, key money managers were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, assembled the biggest position in e.l.f. Beauty, Inc. (NYSE:ELF). Point72 Asset Management had $4.9 million invested in the company at the end of the quarter. Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital also initiated a $1.4 million position during the quarter. The other funds with new positions in the stock are Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners and Minhua Zhang’s Weld Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as e.l.f. Beauty, Inc. (NYSE:ELF) but similarly valued. We will take a look at Phathom Pharmaceuticals, Inc. (NASDAQ:PHAT), Provident Financial Services, Inc. (NYSE:PFS), AudioCodes Ltd. (NASDAQ:AUDC), Grupo Simec S.A.B. de C.V. (NYSE:SIM), FARO Technologies, Inc. (NASDAQ:FARO), istar Inc (NYSE:STAR), and Bright Scholar Education Holdings Limited (NYSE:BEDU). This group of stocks’ market caps are closest to ELF’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.1 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $237 million in ELF’s case. FARO Technologies, Inc. (NASDAQ:FARO) is the most popular stock in this table. On the other hand Grupo Simec S.A.B. de C.V. (NYSE:SIM) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks e.l.f. Beauty, Inc. (NYSE:ELF) is more popular among hedge funds. Our overall hedge fund sentiment score for ELF is 84.5. 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 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately ELF wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ELF were disappointed as the stock returned -3.7% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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