Should I Buy B. Riley Financial, Inc. (RILY)?

In this article we are going to use hedge fund sentiment as a tool and determine whether B. Riley Financial, Inc. (NASDAQ:RILY) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

B. Riley Financial, Inc. (NASDAQ:RILY) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 24 hedge funds’ portfolios at the end of September. Our calculations also showed that RILY isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 Noble Corporation (NYSE:NE), Ferroglobe PLC (NASDAQ:GSM), and NGM Biopharmaceuticals, Inc. (NASDAQ:NGM) to gather more data points.

Philip Hempleman of Ardsley Partners

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 go over the recent hedge fund action regarding B. Riley Financial, Inc. (NASDAQ:RILY).

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

At Q3’s end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in RILY a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the most valuable position in B. Riley Financial, Inc. (NASDAQ:RILY). Royce & Associates has a $23.7 million position in the stock, comprising 0.2% of its 13F portfolio. The second largest stake is held by Paul Tudor Jones of Tudor Investment Corp, with a $20.7 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining peers that hold long positions include Brett Hendrickson’s Nokomis Capital, and Parsa Kiai’s Steamboat Capital Partners. In terms of the portfolio weights assigned to each position Nokomis Capital allocated the biggest weight to B. Riley Financial, Inc. (NASDAQ:RILY), around 4.79% of its 13F portfolio. Cruiser Capital Advisors is also relatively very bullish on the stock, designating 2.49 percent of its 13F equity portfolio to RILY.

Because B. Riley Financial, Inc. (NASDAQ:RILY) has witnessed declining sentiment from hedge fund managers, we can see that there lies a certain “tier” of funds who were dropping their entire stakes in the third quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the biggest position of the 750 funds monitored by Insider Monkey, worth an estimated $4.7 million in stock, and Jerome L. Simon’s Lonestar Capital Management was right behind this move, as the fund cut about $3.1 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as B. Riley Financial, Inc. (NASDAQ:RILY) but similarly valued. We will take a look at Noble Corporation (NYSE:NE), Ferroglobe PLC (NASDAQ:GSM), NGM Biopharmaceuticals, Inc. (NASDAQ:NGM), Immunocore Holdings plc (NASDAQ:IMCR), Sculptor Capital Management, Inc. (NYSE:SCU), Wheels Up Experience Inc. (NYSE:UP), and Sixth Street Specialty Lending Inc (NYSE:TSLX). This group of stocks’ market caps are closest to RILY’s market cap.

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As you can see these stocks had an average of 16.9 hedge funds with bullish positions and the average amount invested in these stocks was $211 million. That figure was $110 million in RILY’s case. Ferroglobe PLC (NASDAQ:GSM) is the most popular stock in this table. On the other hand Sixth Street Specialty Lending Inc (NYSE:TSLX) is the least popular one with only 10 bullish hedge fund positions. B. Riley Financial, Inc. (NASDAQ:RILY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RILY is 83.8. 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. 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 still beat the market by 5.1 percentage points. Hedge funds were also right about betting on RILY as the stock returned 36.9% since the end of Q3 (through 12/9) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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