Was The Smart Money Right About Lululemon Athletica (LULU)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Lululemon Athletica inc. (NASDAQ:LULU).

Hedge fund interest in Lululemon Athletica inc. (NASDAQ:LULU) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that LULU isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 DoorDash, Inc. (NYSE:DASH), Capital One Financial Corp. (NYSE:COF), and Roper Technologies Inc. (NYSE:ROP) to gather more data points.

In today’s marketplace there are dozens of methods shareholders employ to assess stocks. Some of the most underrated methods are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the best fund managers can beat the broader indices by a solid margin (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 197% since March 2017 (through March 2021) and beat the S&P 500 Index by 124 percentage points. You can download a sample issue of this newsletter on our website .

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we leave no stone unturned when looking for 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 hydrogen fuel cell 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 Lululemon Athletica inc. (NASDAQ:LULU).

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

Heading into the first quarter of 2021, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 47 hedge funds held shares or bullish call options in LULU a year ago. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, D. E. Shaw’s D E Shaw has the most valuable position in Lululemon Athletica inc. (NASDAQ:LULU), worth close to $237.8 million, accounting for 0.2% of its total 13F portfolio. On D E Shaw’s heels is Broad Peak Investment Holdings, led by Hyder Ahmad, holding a $82.9 million position; the fund has 5% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions consist of Daniel Patrick Gibson’s Sylebra Capital Management, Cliff Asness’s AQR Capital Management and Nancy Zevenbergen’s Zevenbergen Capital Investments. In terms of the portfolio weights assigned to each position Broad Peak Investment Holdings allocated the biggest weight to Lululemon Athletica inc. (NASDAQ:LULU), around 4.95% of its 13F portfolio. Stormborn Capital Management is also relatively very bullish on the stock, designating 3.27 percent of its 13F equity portfolio to LULU.

Due to the fact that Lululemon Athletica inc. (NASDAQ:LULU) has faced a decline in interest from the aggregate hedge fund industry, we can see that there were a few funds who sold off their full holdings in the fourth quarter. Interestingly, Robert Pohly’s Samlyn Capital dropped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, totaling close to $136 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dropped about $105.6 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 review hedge fund activity in other stocks – not necessarily in the same industry as Lululemon Athletica inc. (NASDAQ:LULU) but similarly valued. These stocks are DoorDash, Inc. (NYSE:DASH), Capital One Financial Corp. (NYSE:COF), Roper Technologies Inc. (NYSE:ROP), Keurig Dr Pepper Inc. (NASDAQ:KDP), The Blackstone Group Inc. (NYSE:BX), NXP Semiconductors NV (NASDAQ:NXPI), and Peloton Interactive, Inc. (NASDAQ:PTON). This group of stocks’ market valuations match LULU’s market valuation.

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As you can see these stocks had an average of 49.4 hedge funds with bullish positions and the average amount invested in these stocks was $2683 million. That figure was $929 million in LULU’s case. NXP Semiconductors NV (NASDAQ:NXPI) is the most popular stock in this table. On the other hand Keurig Dr Pepper Inc. (NASDAQ:KDP) is the least popular one with only 29 bullish hedge fund positions. Lululemon Athletica inc. (NASDAQ:LULU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LULU is 62.2. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately LULU wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on LULU were disappointed as the stock returned -3.7% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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