Were Hedge Funds Right About Leslie’s, Inc. (LESL)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Leslie’s, Inc. (NASDAQ:LESL) and determine whether hedge funds skillfully traded this stock.

Is Leslie’s, Inc. (NASDAQ:LESL) a buy, sell, or hold? The best stock pickers were getting less bullish. The number of bullish hedge fund bets decreased by 4 recently. Leslie’s, Inc. (NASDAQ:LESL) was in 31 hedge funds’ portfolios at the end of September. The all time high for this statistic is 35. Our calculations also showed that LESL 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. With all of this in mind let’s take a look at the fresh hedge fund action regarding Leslie’s, Inc. (NASDAQ:LESL).

Dan Loeb of Third Point

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

At Q3’s end, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in LESL a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Third Point, managed by Dan Loeb, holds the biggest position in Leslie’s, Inc. (NASDAQ:LESL). Third Point has a $126.3 million position in the stock, comprising 0.7% of its 13F portfolio. Sitting at the No. 2 spot is Marshall Wace LLP, managed by Paul Marshall and Ian Wace, which holds a $35.7 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions include Israel Englander’s Millennium Management, James Woodson Davis’s Woodson Capital Management and Brett Barakett’s Tremblant Capital. In terms of the portfolio weights assigned to each position Becker Drapkin Management allocated the biggest weight to Leslie’s, Inc. (NASDAQ:LESL), around 2.15% of its 13F portfolio. Woodson Capital Management is also relatively very bullish on the stock, designating 1.98 percent of its 13F equity portfolio to LESL.

Seeing as Leslie’s, Inc. (NASDAQ:LESL) has faced falling interest from hedge fund managers, we can see that there was a specific group of fund managers who were dropping their positions entirely by the end of the third quarter. Interestingly, Jeffrey Talpins’s Element Capital Management sold off the largest investment of all the hedgies tracked by Insider Monkey, worth about $11.5 million in stock. Simon Sadler’s fund, Segantii Capital, also sold off its stock, about $9.2 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 4 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks similar to Leslie’s, Inc. (NASDAQ:LESL). We will take a look at SiTime Corporation (NASDAQ:SITM), BankUnited Inc (NYSE:BKU), Datto Holding Corp. (NYSE:MSP), Recursion Pharmaceuticals Inc. (NASDAQ:RXRX), Schrodinger, Inc. (NASDAQ:SDGR), Artisan Partners Asset Management Inc (NYSE:APAM), and Home Bancshares, Inc. (Conway, AR) (NYSE:HOMB). This group of stocks’ market valuations are closest to LESL’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.1 hedge funds with bullish positions and the average amount invested in these stocks was $642 million. That figure was $343 million in LESL’s case. SiTime Corporation (NASDAQ:SITM) is the most popular stock in this table. On the other hand Datto Holding Corp. (NYSE:MSP) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Leslie’s, Inc. (NASDAQ:LESL) is more popular among hedge funds. Our overall hedge fund sentiment score for LESL is 77.6. 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 29.6% in 2021 and still managed to beat the market by another 3.6 percentage points. Hedge funds were somewhat right about betting on LESL as the stock returned 1.4% since the end of September (through January 31st) and outperformed the top 5 hedge fund stocks but not the market. This is a rare phenomenon as top hedge fund stocks usually beat the market over the long-term.

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