Were Hedge Funds Right About Peloton Interactive, Inc. (PTON)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Peloton Interactive, Inc. (NASDAQ:PTON) in this article.

Is Peloton Interactive, Inc. (NASDAQ:PTON) a buy, sell, or hold? The smart money was becoming hopeful. The number of bullish hedge fund bets improved by 3 in recent months. Peloton Interactive, Inc. (NASDAQ:PTON) was in 67 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 64. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that PTON isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 64 hedge funds in our database with PTON positions at the end of the first quarter.

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 79 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.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium 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 gander at the new hedge fund action surrounding Peloton Interactive, Inc. (NASDAQ:PTON).

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

At second quarter’s end, a total of 67 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards PTON over the last 24 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Tiger Global Management LLC was the largest shareholder of Peloton Interactive, Inc. (NASDAQ:PTON), with a stake worth $1094.6 million reported as of the end of June. Trailing Tiger Global Management LLC was Altimeter Capital Management, which amassed a stake valued at $644.9 million. Coatue Management, D1 Capital Partners, and Whale Rock 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 Anatole Investment Management allocated the biggest weight to Peloton Interactive, Inc. (NASDAQ:PTON), around 23.01% of its 13F portfolio. Woodson Capital Management is also relatively very bullish on the stock, dishing out 16.63 percent of its 13F equity portfolio to PTON.

Now, specific money managers have jumped into Peloton Interactive, Inc. (NASDAQ:PTON) headfirst. Anatole Investment Management, managed by George Yang, established the most outsized position in Peloton Interactive, Inc. (NASDAQ:PTON). Anatole Investment Management had $231 million invested in the company at the end of the quarter. Aaron Cowen’s Suvretta Capital Management also initiated a $91 million position during the quarter. The following funds were also among the new PTON investors: Dan Loeb’s Third Point, Andreas Halvorsen’s Viking Global, and Seth Rosen’s Nitorum Capital.

Let’s check out hedge fund activity in other stocks similar to Peloton Interactive, Inc. (NASDAQ:PTON). These stocks are The Trade Desk, Inc. (NASDAQ:TTD), Motorola Solutions Inc (NYSE:MSI), Barrick Gold Corporation (NYSE:GOLD), Cognizant Technology Solutions Corp (NASDAQ:CTSH), AFLAC Incorporated (NYSE:AFL), HP Inc. (NYSE:HPQ), and Palo Alto Networks Inc (NYSE:PANW). This group of stocks’ market valuations are closest to PTON’s market valuation.

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As you can see these stocks had an average of 41.6 hedge funds with bullish positions and the average amount invested in these stocks was $1812 million. That figure was $6124 million in PTON’s case. Palo Alto Networks Inc (NYSE:PANW) is the most popular stock in this table. On the other hand The Trade Desk, Inc. (NASDAQ:TTD) is the least popular one with only 25 bullish hedge fund positions. Peloton Interactive, Inc. (NASDAQ:PTON) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PTON is 85.7. 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 26.3% in 2021 through October 29th and beat the market again by 2.3 percentage points. Unfortunately PTON wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on PTON were disappointed as the stock returned -26.3% since the end of June (through 10/29) 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 many of these stocks already outperformed the market since 2019.

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

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