Is Town Sports International Holdings, Inc. (NASDAQ:CLUB) a good stock to buy considering it rallied on Thursday on news that the company’s top executive is leaving? Shares of the company surged 21.8% on Thursday to close at $3.24 per share after the health clubs operator announced that its President and Chief Executive Officer, Dan Gallagher, is leaving the company, effective today. According to the company, Patrick Walsh, Chairman of the Board of Directors, will be the firm’s Executive Chairman as the Board is yet to decide on who will replace Gallagher.
In light of the exit of the company’s president and CEO and the surge in the company’s share price yesterday, we at Insider Monkey decided to look at the hedge fund and insider sentiment surrounding the stock to see whether Town Sports International Holdings, Inc. (NASDAQ:CLUB) is a good stock to buy. The firm was in 10 hedge funds’ portfolios at the end of March. It has experienced an increase in enthusiasm from smart money lately as we see from the hedge funds we track that there were 9 hedge funds with holdings in the company at the end of the previous quarter.
Let’s first take a step back and analyze how tracking hedge funds can help the everyday investor. Through our research, we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand, the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith in large-cap stocks. In forward tests since August 2012, these top small-cap stocks beat the market by an impressive 83 percentage points, returning over 142% (read the details here). Hence, a retail investor needs to isolate himself from the herd and take advantage of the best growth opportunities in the market by concentrating on small-cap stocks.
As for insider sentiment on Town Sports International Holdings, Inc., we see the company’s now-former CEO Daniel Gallagher, along with Chief Information Officer Paul Barron, and Chief Financial Officer Carolyn Spatafora all making sales of the company’s stock in April and May. Gallagher sold 4,200 of his shares by the end of April, Barron sold 807 shares by the end of the said month, and Spatafora sold 1,313 shares by mid-May. There were no tracked insider purchases in Town Sports International Holdings, Inc. during the first and second quarter of the year.
Keeping this in mind, we’re going to go over the new action surrounding Town Sports International Holdings, Inc. (NASDAQ:CLUB).
How have hedgies been trading Town Sports International Holdings, Inc. (NASDAQ:CLUB)?
By the end of the first quarter of 2015, a total of 10 of the hedge funds tracked by Insider Monkey were long in this stock. This is a change of +11% from the fourth quarter.
Looking at the database of hedge funds followed by Insider Monkey, Thomas Steyer’s Farallon Capital had the number one position in Town Sports International Holdings, Inc. (NASDAQ:CLUB) in the first quarter of the year, worth close to $27.6 million. This stake made up 0.4% of Farallon Capital’s total 13F portfolio. Parag Vora of HG Vora Capital Management comes in at second with a $26.4 million position or 3.3% of the fund’s 13F portfolio. Remaining peers that hold long positions include Jim Simons’ Renaissance Technologies, Brian C. Freckmann’s Lyon Street Capital and D.E. Shaw & Co, founded by D.E Shaw.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Nine Chapters Capital Management, managed by Chao Ku, initiated the most outsized position in Town Sports International Holdings, Inc. Nine Chapters Capital Management had $277,000 invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $77,000 investment in the stock during the quarter. The only other fund with a new position in the stock is Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
With positive hedge fund sentiment in Town Sports International Holdings, Inc. (NASDAQ:CLUB) and market optimism over a change in management, we recommend buying into the shares.
Disclosure: None
