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Did Hedge Funds Drop The Ball On Red Rock Resorts, Inc. (RRR)?

Abigail Fisher

While the market driven by short-term sentiment influenced by uncertainty regarding the future of the interest rate environment in the US, declining oil prices and the trade war with China, many smart money investors kept their optimism regarding the current bull run in the fourth quarter, while still hedging many of their long positions. However, as we know, big investors usually buy stocks with strong fundamentals, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Red Rock Resorts, Inc. (NASDAQ:RRR).

Is Red Rock Resorts, Inc. (NASDAQ:RRR) a worthy investment right now? Investors who are in the know are selling. The number of long hedge fund positions were trimmed by 4 recently. Our calculations also showed that RRR isn't among the 30 most popular stocks among hedge funds. RRR was in 17 hedge funds' portfolios at the end of December. There were 21 hedge funds in our database with RRR positions at the end of the previous quarter.

According to most market participants, hedge funds are assumed to be worthless, old financial tools of years past. While there are over 8000 funds trading at present, Our researchers hone in on the leaders of this group, around 750 funds. These hedge fund managers direct bulk of all hedge funds' total capital, and by shadowing their top picks, Insider Monkey has uncovered a number of investment strategies that have historically outstripped the broader indices. Insider Monkey's flagship hedge fund strategy beat the S&P 500 index by nearly 5 percentage points per annum since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.

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We're going to analyze the key hedge fund action encompassing Red Rock Resorts, Inc. (NASDAQ:RRR).

How have hedgies been trading Red Rock Resorts, Inc. (NASDAQ:RRR)?

Heading into the first quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RRR over the last 14 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

RRR_apr2019

The largest stake in Red Rock Resorts, Inc. (NASDAQ:RRR) was held by Diamond Hill Capital, which reported holding $133.5 million worth of stock at the end of September. It was followed by Lomas Capital Management with a $48.5 million position. Other investors bullish on the company included PAR Capital Management, Serengeti Asset Management, and Point72 Asset Management.

Since Red Rock Resorts, Inc. (NASDAQ:RRR) has experienced bearish sentiment from hedge fund managers, it's easy to see that there were a few hedgies who sold off their full holdings by the end of the third quarter. At the top of the heap, Malcolm Fairbairn's Ascend Capital dropped the biggest position of all the hedgies monitored by Insider Monkey, worth about $31.1 million in call options, and Matthew Hulsizer's PEAK6 Capital Management was right behind this move, as the fund sold off about $1.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds by the end of the third quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Red Rock Resorts, Inc. (NASDAQ:RRR) but similarly valued. These stocks are Hillenbrand, Inc. (NYSE:HI), Envestnet Inc (NYSE:ENV), Sensient Technologies Corporation (NYSE:SXT), and HMS Holdings Corp. (NASDAQ:HMSY). This group of stocks' market valuations resemble RRR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HI,18,50059,-2 ENV,12,82671,-1 SXT,15,85054,4 HMSY,22,134551,6 Average,16.75,88084,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $88 million. That figure was $305 million in RRR's case. HMS Holdings Corp. (NASDAQ:HMSY) is the most popular stock in this table. On the other hand Envestnet Inc (NYSE:ENV) is the least popular one with only 12 bullish hedge fund positions. Red Rock Resorts, Inc. (NASDAQ:RRR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on RRR as the stock returned 35.8% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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