Should You Avoid Select Comfort Corp. (SCSS)?

Is Select Comfort Corp. (NASDAQ:SCSS) an exceptional investment right now? Prominent investors are in a pessimistic mood. The number of bullish hedge fund positions stayed the same which is a slightly negative development in our experience

In today’s marketplace, there are plenty of indicators shareholders can use to monitor their holdings. A couple of the most underrated are hedge fund and insider trading activity. At Insider Monkey, our studies have shown that, historically, those who follow the best picks of the top money managers can trounce the market by a superb margin (see just how much).

Equally as important, optimistic insider trading activity is a second way to parse down the financial markets. There are a variety of incentives for an upper level exec to get rid of shares of his or her company, but just one, very clear reason why they would initiate a purchase. Plenty of empirical studies have demonstrated the market-beating potential of this strategy if piggybackers know what to do (learn more here).

With these “truths” under our belt, let’s take a look at the recent action encompassing Select Comfort Corp. (NASDAQ:SCSS).

What does the smart money think about Select Comfort Corp. (NASDAQ:SCSS)?

At Q1’s end, a total of 18 of the hedge funds we track held long positions in this stock, a change of 0% from one quarter earlier. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes significantly.

When looking at the hedgies we track, Phill Gross and Robert Atchinson’s Adage Capital Management had the biggest position in Select Comfort Corp. (NASDAQ:SCSS), worth close to $19.4 million, accounting for 0.1% of its total 13F portfolio. On Adage Capital Management’s heels is Sheffield Asset Management, managed by Craig C. Albert, which held a $17.8 million position; the fund has 4.3% of its 13F portfolio invested in the stock. Some other peers with similar optimism include Mark Broach’s Manatuck Hill Partners, David Keidan’s Buckingham Capital Management and Jim Simons’s Renaissance Technologies.

Because Select Comfort Corp. (NASDAQ:SCSS) has witnessed a declination in interest from the aggregate hedge fund industry, we can see that there was a specific group of funds that slashed their full holdings in Q1. Interestingly, Drew Cupps’s Cupps Capital Management said goodbye to the largest stake of all the hedgies we watch, comprising an estimated $13.6 million in stock.. Richard Driehaus’s fund, Driehaus Capital, also said goodbye to its stock, about $3.9 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

What have insiders been doing with Select Comfort Corp. (NASDAQ:SCSS)?

Bullish insider trading is at its handiest when the company in question has seen transactions within the past six months. Over the latest half-year time period, Select Comfort Corp. (NASDAQ:SCSS) has experienced zero unique insiders buying, and 4 insider sales (see the details of insider trades here).

Let’s also review hedge fund and insider activity in other stocks similar to Select Comfort Corp. (NASDAQ:SCSS). These stocks are Tempur-Pedic International Inc. (NYSE:TPX), American Woodmark Corporation (NASDAQ:AMWD), Ethan Allen Interiors Inc. (NYSE:ETH), La-Z-Boy Incorporated (NYSE:LZB), and Mattress Firm Holding Corp (NASDAQ:MFRM). All of these stocks are in the home furnishings & fixtures industry and their market caps resemble SCSS’s market cap.