GrubHub Inc (NYSE:GRUB) saw the release of two opposing opinions on the company yesterday. On the one hand, ITG Research, according to TheFlyontheWall, predicts the restaurant pickup and delivery platform will report just $84 million in second quarter revenue, a miss of the $85.3 million The Street is expecting. On the other side, we have Guggenheim Securities, which initiated coverage on the stock with a rating of “Buy” and a price target of $45 per share, a 32% upside to the stock’s $34.08 closing price on June 30, before it tumbled to an even lower $31.67 per share closing price yesterday, July 1. According to ITG, as relayed briefly by TheFlyontheWall, their “analysis indicates that key consumer metrics continued to decelerate and that GrubHub has lost market share in newer markets in Q2.” Guggenheim argues that the selloff after GrubHub Inc (NYSE:GRUB)’s first quarter performance report was unwarranted, that the company is poised to benefit from its investments, and that the firm could eventually be acquired due to consolidation in the “restaurant services vertical”. Based on Insider Monkey’s data, prominent investors seem to be letting their money speak on the side of Guggenheim.
Heading into the second quarter, a total of 33 of the hedge funds tracked by Insider Monkey were long in this stock, a 3% increase from one quarter earlier. More importantly, investments in the company among the hedge funds who were betting on GrubHub increased dramatically by the end of the first quarter. To be exact, the aggregate value of holdings increased by 72.69% to $647.87 million from $375.17 million at the end of 2014. This is significant since the stock only surged nearly 25% from January 2 to March 31.
Let’s first take a step back and analyze how tracking hedge funds can help an 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 80 percentage points, returning over 135% (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.
Insider Monkey also tracks insider moves in companies, gauging whether buying or selling of shares by management team members signify confidence or lack thereof in their own firm’s shares. In the case of GrubHub, there were no purchases of shares by insiders recorded in the first six months of the year. There were, however, several sales of shares by insiders, the most notable of which was Director Benjamin Spero selling 1.0 million shares on May 1 and 2.0 million shares on February 9.
With all of this in mind, we’re going to analyze the key hedge fund action surrounding GrubHub Inc on the next page.
How have hedgies been trading GrubHub Inc (NYSE:GRUB)?
According to hedge fund intelligence website Insider Monkey, Luxor Capital Group, managed by Christian Leone, holds the number one position in GrubHub Inc (NYSE:GRUB). Luxor Capital Group has a $160.3 million position of 3.53 million shares of the company, comprising 2.6% of its 13F portfolio. On Luxor Capital Group’s heels is Pasco Alfaro and Richard Tumure’s Miura Global Management, with a $121.9 million position in 2.69 million shares; 7.3% of its 13F portfolio is allocated to the company. Some other members of the smart money that hold long positions consist of Ken Griffin’s Citadel Investment Group, Alex Sacerdote’s Whale Rock Capital Management, and Alan Fournier‘s Pennant Capital Management.
As aggregate interest increased, key money managers have been driving this bullishness. It needs to be mentioned that the large Luxor Capital Group and Miura Global Management stakes mentioned earlier were initiated during the first quarter. The following funds were also among the new Grub investors: Alex Sacerdote’s Whale Rock Capital Management, John Thaler’s JAT Capital Management, and Joel Ramin’s 12 West Capital Management.
With the substantially greater interest hedge funds are showing, it appears that Guggenheim got it right, at least in the eyes of the world’s most respected money managers, and GrubHub Inc (NYSE:GRUB) looks like a good stock to buy at the moment.
Disclosure: None
