Is Potbelly Corp (PBPB) Going to Burn These Hedge Funds?

At Insider Monkey we follow around 730 of the best-performing investors and even though many of them lost money in the last several months, the history teaches us that over the long-run they still manage to beat the market, which is why it can be profitable for us to imitate their activity. Of course, even the best money managers can sometimes get it wrong, but following some of their picks gives us a better chance to outperform the crowd than picking a random stock and this is where our research comes in.

Potbelly Corp (NASDAQ:PBPB) has experienced a decrease in hedge fund sentiment of late. PBPB was in 15 hedge funds’ portfolios at the end of the third quarter of 2015. There were 19 hedge funds in our database with PBPB positions at the end of the previous quarter. At the end of this article we will also compare PBPB to other stocks including Zogenix, Inc. (NASDAQ:ZGNX), Comtech Telecomm. Corp. (NASDAQ:CMTL), and Cardionet Inc (NASDAQ:BEAT) to get a better sense of its popularity.

If you’d ask most shareholders, hedge funds are assumed to be slow, old financial vehicles of years past. While there are over 8000 funds in operation at present, Our researchers hone in on the leaders of this group, approximately 700 funds. It is estimated that this group of investors administer the lion’s share of the hedge fund industry’s total asset base, and by paying attention to their inimitable stock picks, Insider Monkey has deciphered several investment strategies that have historically outstripped the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy beat the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

Now, we’re going to go over the recent action regarding Potbelly Corp (NASDAQ:PBPB).

Hedge fund activity in Potbelly Corp (NASDAQ:PBPB)

At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from the previous quarter. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Renaissance Technologies, managed by Jim Simons, holds the number one position in Potbelly Corp (NASDAQ:PBPB). Renaissance Technologies has an $8.4 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Legg Mason Capital Management, led by Bill Miller, holding an $7.5 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism include Steve Cohen’s Point72 Asset Management, Israel Englander’s Millennium Management and Michael Zimmerman’s Prentice Capital Management.

Judging by the fact that Potbelly Corp (NASDAQ:PBPB) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few fund managers that elected to cut their full holdings heading into Q4. It’s worth mentioning that Alexander Mitchell’s Scopus Asset Management sold off the biggest investment of all the hedgies monitored by Insider Monkey, worth close to $3.1 million in stock, and D. E. Shaw’s D E Shaw was right behind this move, as the fund dumped about $0.5 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 4 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Potbelly Corp (NASDAQ:PBPB). We will take a look at Zogenix, Inc. (NASDAQ:ZGNX), Comtech Telecomm. Corp. (NASDAQ:CMTL), Cardionet Inc (NASDAQ:BEAT), and First Community Bancshares Inc (NASDAQ:FCBC). All of these stocks’ market caps are closest to PBPB’s market cap.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $35 million in PBPB’s case. Zogenix, Inc. (NASDAQ:ZGNX) is the most popular stock in this table, while the least popular one is First Community Bancshares Inc (NASDAQ:FCBC)) with only 6 bullish hedge fund positions. Even though Potbelly Corp (NASDAQ:PBPB) is not the least popular stock in this group it has not attracted much attention from investors. This is may imply that it is not a good stock to buy, and we’d rather spend our time researching stocks that hedge funds are piling on. In this case ZGNX might be a better candidate to consider a long position.