Hedge Funds Like These Trending Stocks But Upside May Be Limited

Domino’s Pizza, Inc. (NYSE:DPZ) and International Speedway Corp (NASDAQ:ISCA) both reported earnings this morning. Domino’s Pizza missed revenue and earnings expectations and is down by 4.5% in pre-market trading, while International Speedway Corp beat revenue and earnings expectations and is unchanged in the pre-market session. Let’s take a closer look at their earnings reports and examine what the smart money thinks of the two companies.

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For its third quarter, Domino’s Pizza, Inc. (NYSE:DPZ) earned $0.67 per share on revenues of $484.7 million, missing earnings expectations of $0.74 per share on revenues of $487.05 million. Domestic same-store sales increased by 10.5%, while international same-store sales increased by 7.7%. The company added 194 stores to its total in the quarter and repurchased 365,460 shares. Operating margin declined by 0.6% to 29.3%.

While the third quarter results led to a bad earnings report, one weak quarter isn’t exactly cause for alarm. A little consolidation would be healthy for the stock. Domino’s Pizza has had a good run from its 2010 base as the U.S consumer bounces back. The stock trades at a relatively high forward P/E of 26.89 and could take a few quarters to grow into its valuation, however.

Our data shows that hedge funds were bullish on Domino’s Pizza, Inc. (NYSE:DPZ) in the second quarter. Of the 730 elite funds that we track, 23 reported holding stakes in Domino’s worth $1.18 billion as of June 30, representing 18.80% of the float, versus 22 funds and $975.14 million a quarter earlier. Jim Simons‘ Renaissance Technologies decreased its position by 4% to 3.34 million shares while Dmitry Balyasny’s Balyasny Asset Management increased its stake by 134% to 437,380 shares. Cliff Asness’ AQR Capital Management raised its holding by 6% to 395,977 shares.

International Speedway Corp (NASDAQ:ISCA) reported a loss of $0.01 on revenues of $125.49 million, beating earnings expectations of a loss of $0.06 per share on revenues of $129.91 million. Guidance was stronger-than-expected, with management raising its 2015 full year non-GAAP guidance to $635-to-$640 million in revenues, an EBITDA margin of 30%-to-30.5%, and diluted earnings per share of $1.35-to-$1.40. ISC Chief Executive Officer Lesa France Kennedy had this to say about the results in a press release:

“Financial results again exceeded our expectations in the third quarter. Solid NASCAR events in August at Michigan International Speedway and Watkins Glen, growth in earnings from our investment in the Hollywood Casino at Kansas Speedway and revenue from the Faster Horses and Phish Magnaball music festivals more than offset the construction related reduction in seating capacity for the Coke Zero 400 and the impact of inclement weather at a number of our events early in the period. The stabilization and growth we are seeing in our core business demonstrates the success we can achieve by sticking with our capacity management and guest experience initiatives. We can also grow our business through non-motorsports strategies such as our Hollywood Casino investment and hosting other major spectator events at our facilities. These positive trends complement our industry’s long-term broadcast agreements that, along with a solid balance sheet, position us over the long-term to build shareholder value.”

The earnings report was pretty good, but given International Speedway Corp (NASDAQ:ISCA)’s forward P/E of 21.65 and five-year EPS CAGR of 5%, it’s hard to get excited about the stock.

15 funds owned $257.45 million of the company’s shares (representing 15.10% of the float) on June 30, slightly down from 16 funds holding $271.62 million in shares on March 31. John W. Rogers’ Ariel Investments decreased its position by 15% to 5.77 million shares while Robert Hockett’s Covalent Capital Partners lowered its stake by 42% to 297,138 shares. Mario Gabelli’s GAMCO Investors kept its stake unchanged at 125,000 shares.

Disclosure: None