Were Expert Investors Right About Lululemon Athletica inc. (LULU)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the third quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of Lululemon Athletica inc. (NASDAQ:LULU) based on that data and determine whether they were really smart about the stock.

Lululemon Athletica inc. (NASDAQ:LULU) has experienced a decrease in hedge fund sentiment lately. Lululemon Athletica inc. (NASDAQ:LULU) was in 41 hedge funds’ portfolios at the end of September. The all time high for this statistic is 52. There were 46 hedge funds in our database with LULU positions at the end of the second quarter. Our calculations also showed that LULU isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

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. Now we’re going to go over the key hedge fund action encompassing Lululemon Athletica inc. (NASDAQ:LULU).

Peter Rathjens of Arrowstreet Capital

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

At the end of September, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the previous quarter. By comparison, 50 hedge funds held shares or bullish call options in LULU a year ago. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

More specifically, Arrowstreet Capital was the largest shareholder of Lululemon Athletica inc. (NASDAQ:LULU), with a stake worth $234 million reported as of the end of September. Trailing Arrowstreet Capital was Citadel Investment Group, which amassed a stake valued at $190.1 million. Renaissance Technologies, D E Shaw, and AQR 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 Kehrs Ridge Capital allocated the biggest weight to Lululemon Athletica inc. (NASDAQ:LULU), around 2.61% of its 13F portfolio. Value Star Asset Management is also relatively very bullish on the stock, dishing out 1.85 percent of its 13F equity portfolio to LULU.

Due to the fact that Lululemon Athletica inc. (NASDAQ:LULU) has witnessed a decline in interest from hedge fund managers, it’s safe to say that there is a sect of hedgies that slashed their entire stakes last quarter. Intriguingly, Hyder Ahmad’s Broad Peak Investment Holdings said goodbye to the largest stake of the 750 funds watched by Insider Monkey, valued at about $86.9 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dumped its stock, about $71.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 5 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Lululemon Athletica inc. (NASDAQ:LULU). These stocks are Public Storage (NYSE:PSA), NXP Semiconductors NV (NASDAQ:NXPI), Ferrari N.V. (NYSE:RACE), Itau Unibanco Holding SA (NYSE:ITUB), Takeda Pharmaceutical Company Limited (NYSE:TAK), Prudential Public Limited Company (NYSE:PUK), and Chipotle Mexican Grill, Inc. (NYSE:CMG). This group of stocks’ market caps are similar to LULU’s market cap.

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As you can see these stocks had an average of 26.7 hedge funds with bullish positions and the average amount invested in these stocks was $1149 million. That figure was $709 million in LULU’s case. NXP Semiconductors NV (NASDAQ:NXPI) is the most popular stock in this table. On the other hand Prudential Public Limited Company (NYSE:PUK) is the least popular one with only 4 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 63. 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 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, LULU wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on LULU were disappointed as the stock returned -17.5% since the end of September (through 1/31) 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 all of these stocks already outperformed the market since 2019.

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