Potbelly Corp (PBPB): Hedge Funds In Wait-and-See Mode

In this article you are going to find out whether hedge funds think Potbelly Corp (NASDAQ:PBPB) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Hedge fund interest in Potbelly Corp (NASDAQ:PBPB) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that PBPB isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). 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 Apollo Endosurgery, Inc. (NASDAQ:APEN), Bankwell Financial Group, Inc. (NASDAQ:BWFG), and Zynerba Pharmaceuticals Inc (NASDAQ:ZYNE) to gather more data points.

At the moment there are a lot of tools stock traders employ to assess their stock investments. A couple of the most innovative tools are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the best picks of the best money managers can beat the broader indices by a healthy amount (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

David Nierenberg of Nierenberg Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s view the key hedge fund action regarding Potbelly Corp (NASDAQ:PBPB).

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

At Q2’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards PBPB over the last 24 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Archon Capital Management was the largest shareholder of Potbelly Corp (NASDAQ:PBPB), with a stake worth $16.3 million reported as of the end of June. Trailing Archon Capital Management was Renaissance Technologies, which amassed a stake valued at $13.5 million. Ancora Advisors, Nierenberg Investment Management, and Hudson Bay 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 Nierenberg Investment Management allocated the biggest weight to Potbelly Corp (NASDAQ:PBPB), around 9.36% of its 13F portfolio. Archon Capital Management is also relatively very bullish on the stock, dishing out 1.84 percent of its 13F equity portfolio to PBPB.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Armistice Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Manatuck Hill Partners).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Potbelly Corp (NASDAQ:PBPB) but similarly valued. These stocks are Apollo Endosurgery, Inc. (NASDAQ:APEN), Bankwell Financial Group, Inc. (NASDAQ:BWFG), Zynerba Pharmaceuticals Inc (NASDAQ:ZYNE), Battalion Oil Corporation (NYSE:BATL), Weyco Group, Inc. (NASDAQ:WEYS), CollPlant Biotechnologies Ltd. (NASDAQ:CLGN), and SharpSpring, Inc. (NASDAQ:SHSP). All of these stocks’ market caps resemble PBPB’s market cap.

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As you can see these stocks had an average of 6.9 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $60 million in PBPB’s case. SharpSpring, Inc. (NASDAQ:SHSP) is the most popular stock in this table. On the other hand CollPlant Biotechnologies Ltd. (NASDAQ:CLGN) is the least popular one with only 2 bullish hedge fund positions. Potbelly Corp (NASDAQ:PBPB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PBPB is 63.8. 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 25.7% in 2021 through September 27th and beat the market again by 6.2 percentage points. Unfortunately PBPB wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on PBPB were disappointed as the stock returned -15.1% since the end of June (through 9/27) 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.