Should I Buy Papa John’s International, Inc. (PZZA)?

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 900 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Papa John’s International, Inc. (NASDAQ:PZZA), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Hedge fund interest in Papa John’s International, Inc. (NASDAQ:PZZA) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that PZZA isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare PZZA to other stocks including Microvision, Inc. (NASDAQ:MVIS), The Simply Good Foods Company (NASDAQ:SMPL), and Helmerich & Payne, Inc. (NYSE:HP) to get a better sense of its popularity.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Dmitry Balyasny of Balyasny Asset 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. Keeping this in mind let’s take a peek at the latest hedge fund action encompassing Papa John’s International, Inc. (NASDAQ:PZZA).

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

At the end of March, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 29 hedge funds held shares or bullish call options in PZZA a year ago. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

More specifically, Citadel Investment Group was the largest shareholder of Papa John’s International, Inc. (NASDAQ:PZZA), with a stake worth $91 million reported as of the end of March. Trailing Citadel Investment Group was Renaissance Technologies, which amassed a stake valued at $62.3 million. AQR Capital Management, Two Sigma Advisors, and Balyasny Asset 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 Franklin Street Capital allocated the biggest weight to Papa John’s International, Inc. (NASDAQ:PZZA), around 5.36% of its 13F portfolio. Stormborn Capital Management is also relatively very bullish on the stock, setting aside 4.2 percent of its 13F equity portfolio to PZZA.

Seeing as Papa John’s International, Inc. (NASDAQ:PZZA) has witnessed falling interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of fund managers who sold off their full holdings in the first quarter. Interestingly, Steve Cohen’s Point72 Asset Management cut the largest stake of the 750 funds watched by Insider Monkey, worth an estimated $11.4 million in stock, and Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors was right behind this move, as the fund dumped about $3.7 million worth. These transactions 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 similar to Papa John’s International, Inc. (NASDAQ:PZZA). These stocks are Microvision, Inc. (NASDAQ:MVIS), The Simply Good Foods Company (NASDAQ:SMPL), Helmerich & Payne, Inc. (NYSE:HP), Vivint Smart Home, Inc. (NYSE:VVNT), GrowGeneration Corp. (NASDAQ:GRWG), NovaGold Resources Inc. (NYSE:NG), and American National Group Inc. (NASDAQ:ANAT). This group of stocks’ market valuations are closest to PZZA’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.1 hedge funds with bullish positions and the average amount invested in these stocks was $122 million. That figure was $356 million in PZZA’s case. The Simply Good Foods Company (NASDAQ:SMPL) is the most popular stock in this table. On the other hand Vivint Smart Home, Inc. (NYSE:VVNT) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Papa John’s International, Inc. (NASDAQ:PZZA) is more popular among hedge funds. Our overall hedge fund sentiment score for PZZA is 80.3. 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 returned 22.8% in 2021 through July 2nd but still managed to beat the market by 6 percentage points. Hedge funds were also right about betting on PZZA as the stock returned 19% since the end of March (through 7/2) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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