Is Petco Health and Wellness Company, Inc. (WOOF) A Good Stock To Buy?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Petco Health and Wellness Company, Inc. (NASDAQ:WOOF).

Is WOOF a good stock to buy? Investors who are in the know were becoming less confident. The number of bullish hedge fund bets fell by 1 in recent months. Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) was in 26 hedge funds’ portfolios at the end of September. The all time high for this statistic is 27. Our calculations also showed that WOOF isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s take a look at the key hedge fund action surrounding Petco Health and Wellness Company, Inc. (NASDAQ:WOOF).

Arthur B Cohen and Joseph Healey of Healthcor Management LP

Do Hedge Funds Think WOOF Is A Good Stock To Buy Now?

At the end of September, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position in WOOF a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Healthcor Management LP was the largest shareholder of Petco Health and Wellness Company, Inc. (NASDAQ:WOOF), with a stake worth $104.3 million reported as of the end of September. Trailing Healthcor Management LP was Select Equity Group, which amassed a stake valued at $40.5 million. Shannon River Fund Management, Citadel Investment Group, and Candlestick Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Healthcor Management LP allocated the biggest weight to Petco Health and Wellness Company, Inc. (NASDAQ:WOOF), around 4.5% of its 13F portfolio. Shannon River Fund Management is also relatively very bullish on the stock, dishing out 2.5 percent of its 13F equity portfolio to WOOF.

Since Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) has faced declining sentiment from the smart money, it’s safe to say that there is a sect of funds that elected to cut their entire stakes last quarter. Interestingly, Jimmy Levin’s Sculptor Capital sold off the largest position of the “upper crust” of funds monitored by Insider Monkey, worth about $10.9 million in stock. Renaissance Technologies, also sold off its stock, about $4.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 1 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Petco Health and Wellness Company, Inc. (NASDAQ:WOOF). These stocks are Stag Industrial Inc (NYSE:STAG), Inspire Medical Systems, Inc. (NYSE:INSP), CCC Intelligent Solutions Holdings Inc. (NYSE:CCCS), iQIYI, Inc. (NASDAQ:IQ), Kingsoft Cloud Holdings Limited (NASDAQ:KC), HUTCHMED (China) Limited (NASDAQ:HCM), and Perrigo Co Plc (NYSE:PRGO). This group of stocks’ market values match WOOF’s market value.

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As you can see these stocks had an average of 20.1 hedge funds with bullish positions and the average amount invested in these stocks was $274 million. That figure was $320 million in WOOF’s case. Inspire Medical Systems, Inc. (NYSE:INSP) is the most popular stock in this table. On the other hand HUTCHMED (China) Limited (NASDAQ:HCM) is the least popular one with only 9 bullish hedge fund positions. Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WOOF is 75.4. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 31.1% in 2021 through December 9th and beat the market again by 5.1 percentage points. Unfortunately WOOF wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on WOOF were disappointed as the stock returned -3.5% since the end of September (through 12/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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