Is Krispy Kreme Doughnuts (KKD) A Good Stock To Buy?

You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund investors like Carl Icahn and George Soros hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.

Krispy Kreme Doughnuts (NYSE:KKD) investors should pay attention to a decrease in enthusiasm from smart money in recent months. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as MDC Partners Inc. (USA) (NASDAQ:MDCA), Denny’s Corporation (NASDAQ:DENN), and Apollo Commercial Real Est. Finance Inc (NYSE:ARI) to gather more data points.

To the average investor, there are dozens of metrics stock market investors put to use to grade stocks. A pair of the most innovative metrics are hedge fund and insider trading signals. We have shown that, historically, those who follow the top picks of the elite fund managers can trounce the broader indices by a superb margin (see the details here).

Now, we’re going to go over the recent action regarding Krispy Kreme Doughnuts (NYSE:KKD).

How are hedge funds trading Krispy Kreme Doughnuts (NYSE:KKD)?

At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a decrease of 12% from the second quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Jim Simons’s Renaissance Technologies has the biggest position in Krispy Kreme Doughnuts (NYSE:KKD), worth close to $14.8 million, amounting to less than 0.1% of its total 13F portfolio. The second most bullish fund manager is Cardinal Capital, run by Amy Minella, which holds a $14.5 million position; the fund has 0.9% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions consist of Chuck Royce’s Royce & Associates, Ken Griffin’s Citadel Investment Group and George Soros’s Soros Fund Management.

Because Krispy Kreme Doughnuts (NYSE:KKD) has experienced falling interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few money managers who sold off their positions entirely by the end of the third quarter. At the top of the heap, Peter Muller’s PDT Partners dropped the biggest position of all the hedgies monitored by Insider Monkey, worth an estimated $4 million in stock, and Jeffrey Moskowitz’s Harvey Partners was right behind this move, as the fund said goodbye to about $3.2 million worth of KKD shares. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 3 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Krispy Kreme Doughnuts (NYSE:KKD) but similarly valued. We will take a look at MDC Partners Inc. (USA) (NASDAQ:MDCA), Denny’s Corporation (NASDAQ:DENN), Apollo Commercial Real Est. Finance Inc (NYSE:ARI), and Smith & Wesson Holding Corporation (NASDAQ:SWHC). This group of stocks’ market valuations are similar to KKD’s market valuation.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $137 million. That figure was just $73 million in KKD’s case. Smith & Wesson Holding Corporation (NASDAQ:SWHC) is the most popular stock in this table. On the other hand Apollo Commercial Real Est. Finance Inc (NYSE:ARI) is the least popular one with only 9 bullish hedge fund positions. Krispy Kreme Doughnuts (NYSE:KKD) is not the most popular stock in this group, but hedge fund interest is still above average. Since this is a slightly positive signal, we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SWHC might be a better candidate to consider a long position.