Were Hedge Funds Right About The Lovesac Company (LOVE)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 866 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st. In this article we look at what those investors think of The Lovesac Company (NASDAQ:LOVE).

The Lovesac Company (NASDAQ:LOVE) investors should be aware of an increase in activity from the world’s largest hedge funds of late. The Lovesac Company (NASDAQ:LOVE) was in 18 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic was previously 14. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 14 hedge funds in our database with LOVE positions at the end of the fourth quarter. Our calculations also showed that LOVE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Roger Ibbotson of Zebra Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 we’re going to go over the new hedge fund action surrounding The Lovesac Company (NASDAQ:LOVE).

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

At first quarter’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in LOVE a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

The largest stake in The Lovesac Company (NASDAQ:LOVE) was held by Scopus Asset Management, which reported holding $47.4 million worth of stock at the end of December. It was followed by Driehaus Capital with a $27.8 million position. Other investors bullish on the company included Skylands Capital, D E Shaw, and Scopus Asset Management. In terms of the portfolio weights assigned to each position Skylands Capital allocated the biggest weight to The Lovesac Company (NASDAQ:LOVE), around 1.03% of its 13F portfolio. Venator Capital Management is also relatively very bullish on the stock, earmarking 0.89 percent of its 13F equity portfolio to LOVE.

Consequently, key money managers have been driving this bullishness. Scopus Asset Management, managed by Alexander Mitchell, established the largest call position in The Lovesac Company (NASDAQ:LOVE). Scopus Asset Management had $5.7 million invested in the company at the end of the quarter.  Renaissance Technologies also initiated a $2.2 million position during the quarter. The following funds were also among the new LOVE investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, John Overdeck and David Siegel’s Two Sigma Advisors, and Michael Gelband’s ExodusPoint Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as The Lovesac Company (NASDAQ:LOVE) but similarly valued. We will take a look at Affimed NV (NASDAQ:AFMD), Brigham Minerals, Inc. (NYSE:MNRL), Anterix Inc. (NASDAQ:ATEX), Chimerix Inc (NASDAQ:CMRX), Caleres Inc (NYSE:CAL), Trean Insurance Group, Inc. (NASDAQ:TIG), and AxoGen, Inc. (NASDAQ:AXGN). All of these stocks’ market caps are similar to LOVE’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.4 hedge funds with bullish positions and the average amount invested in these stocks was $147 million. That figure was $110 million in LOVE’s case. Affimed NV (NASDAQ:AFMD) is the most popular stock in this table. On the other hand Trean Insurance Group, Inc. (NASDAQ:TIG) is the least popular one with only 11 bullish hedge fund positions. The Lovesac Company (NASDAQ:LOVE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LOVE is 68.2. 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 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 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately LOVE wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on LOVE were disappointed as the stock returned 8.9% since the end of March (through 7/23) 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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