Is Groupon Inc (NASDAQ:GRPN) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Groupon Inc (NASDAQ:GRPN) investors should be aware of a decrease in hedge fund sentiment recently. GRPN was in 24 hedge funds’ portfolios at the end of June. There were 26 hedge funds in our database with GRPN holdings at the end of the previous quarter. Our calculations also showed that GRPN isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a gander at the recent hedge fund action surrounding Groupon Inc (NASDAQ:GRPN).
Hedge fund activity in Groupon Inc (NASDAQ:GRPN)
Heading into the third quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GRPN over the last 16 quarters. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
The largest stake in Groupon Inc (NASDAQ:GRPN) was held by PAR Capital Management, which reported holding $202.8 million worth of stock at the end of March. It was followed by P2 Capital Partners with a $66.5 million position. Other investors bullish on the company included Ulysses Management, D E Shaw, and Freshford Capital Management.
Due to the fact that Groupon Inc (NASDAQ:GRPN) has witnessed bearish sentiment from the aggregate hedge fund industry, logic holds that there exists a select few fund managers who sold off their full holdings in the second quarter. It’s worth mentioning that Derek C. Schrier’s Indaba Capital Management dumped the largest investment of all the hedgies monitored by Insider Monkey, comprising close to $12.5 million in stock. Douglas Dossey and Arthur Young’s fund, Tensile Capital, also dumped its stock, about $3.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds in the second quarter.
Let’s now review hedge fund activity in other stocks similar to Groupon Inc (NASDAQ:GRPN). These stocks are Anixter International Inc. (NYSE:AXE), TowneBank (NASDAQ:TOWN), Greif, Inc. (NYSE:GEF), and International Speedway Corporation (NASDAQ:ISCA). This group of stocks’ market values are closest to GRPN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AXE | 20 | 258192 | -3 |
| TOWN | 7 | 36621 | 0 |
| GEF | 21 | 90122 | 0 |
| ISCA | 14 | 170355 | -5 |
| Average | 15.5 | 138823 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $139 million. That figure was $392 million in GRPN’s case. Greif, Inc. (NYSE:GEF) is the most popular stock in this table. On the other hand TowneBank (NASDAQ:TOWN) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Groupon Inc (NASDAQ:GRPN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately GRPN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GRPN were disappointed as the stock returned -25.7% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
