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In this article we are going to use hedge fund sentiment as a tool and determine whether Boot Barn Holdings Inc (NYSE:BOOT) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is BOOT a good stock to buy now? Hedge fund interest in Boot Barn Holdings Inc (NYSE:BOOT) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that BOOT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare BOOT to other stocks including Embraer SA (NYSE:ERJ), Monarch Casino & Resort, Inc. (NASDAQ:MCRI), and Alexander & Baldwin Inc (NYSE:ALEX) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 66 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.
Dmitry Balyasny of Balyasny Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Now let's review the recent hedge fund action surrounding Boot Barn Holdings Inc (NYSE:BOOT).
Do Hedge Funds Think BOOT Is A Good Stock To Buy Now?
At the end of September, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in BOOT a year ago. With the smart money's sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, Balyasny Asset Management was the largest shareholder of Boot Barn Holdings Inc (NYSE:BOOT), with a stake worth $6.3 million reported as of the end of September. Trailing Balyasny Asset Management was Deep Field Asset Management, which amassed a stake valued at $6.1 million. Sonic Capital, Granite Point Capital, and Citadel Investment Group 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 Sonic Capital allocated the biggest weight to Boot Barn Holdings Inc (NYSE:BOOT), around 3.96% of its 13F portfolio. Deep Field Asset Management is also relatively very bullish on the stock, earmarking 3.83 percent of its 13F equity portfolio to BOOT.
Due to the fact that Boot Barn Holdings Inc (NYSE:BOOT) has faced declining sentiment from the smart money, logic holds that there exists a select few funds that elected to cut their positions entirely by the end of the third quarter. It's worth mentioning that Peter Algert and Kevin Coldiron's Algert Coldiron Investors said goodbye to the biggest position of the 750 funds followed by Insider Monkey, totaling about $0.4 million in stock. Greg Eisner's fund, Engineers Gate Manager, also said goodbye to its stock, about $0.3 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks similar to Boot Barn Holdings Inc (NYSE:BOOT). These stocks are Embraer SA (NYSE:ERJ), Monarch Casino & Resort, Inc. (NASDAQ:MCRI), Alexander & Baldwin Inc (NYSE:ALEX), GreenSky, Inc. (NASDAQ:GSKY), Associated Capital Group, Inc. (NYSE:AC), Endurance International Group Holdings Inc (NASDAQ:EIGI), and Southside Bancshares, Inc. (NASDAQ:SBSI). This group of stocks' market caps resemble BOOT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ERJ,10,40881,-4 MCRI,10,86745,-4 ALEX,15,33459,2 GSKY,12,23357,-1 AC,5,56413,0 EIGI,16,95183,1 SBSI,8,31525,-3 Average,10.9,52509,-1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.9 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $33 million in BOOT's case. Endurance International Group Holdings Inc (NASDAQ:EIGI) is the most popular stock in this table. On the other hand Associated Capital Group, Inc. (NYSE:AC) is the least popular one with only 5 bullish hedge fund positions. Boot Barn Holdings Inc (NYSE:BOOT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BOOT is 55.3. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on BOOT as the stock returned 51.6% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.