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Is DLTH A Good Stock To Buy Now?

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·6 min read
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In this article we will take a look at whether hedge funds think Duluth Holdings Inc. (NASDAQ:DLTH) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is DLTH a good stock to buy now? Duluth Holdings Inc. (NASDAQ:DLTH) shareholders have witnessed an increase in hedge fund interest lately. Duluth Holdings Inc. (NASDAQ:DLTH) was in 11 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 12. There were 8 hedge funds in our database with DLTH positions at the end of the second quarter. Our calculations also showed that DLTH 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).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Ryan Tolkin, CIO of Schonfeld Strategic Advisors

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 take a glance at the latest hedge fund action regarding Duluth Holdings Inc. (NASDAQ:DLTH).

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

At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 38% from the previous quarter. By comparison, 10 hedge funds held shares or bullish call options in DLTH a year ago. With hedge funds' sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

The largest stake in Duluth Holdings Inc. (NASDAQ:DLTH) was held by Arrowstreet Capital, which reported holding $4.5 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $2.9 million position. Other investors bullish on the company included Rima Senvest Management, Citadel Investment Group, and Marshall Wace LLP. In terms of the portfolio weights assigned to each position Algert Coldiron Investors allocated the biggest weight to Duluth Holdings Inc. (NASDAQ:DLTH), around 0.18% of its 13F portfolio. Rima Senvest Management is also relatively very bullish on the stock, setting aside 0.13 percent of its 13F equity portfolio to DLTH.

With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Rima Senvest Management, managed by Richard Mashaal, initiated the largest position in Duluth Holdings Inc. (NASDAQ:DLTH). Rima Senvest Management had $2.2 million invested in the company at the end of the quarter. Peter Muller's PDT Partners also made a $0.4 million investment in the stock during the quarter. The other funds with brand new DLTH positions are Thomas Bailard's Bailard Inc and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Duluth Holdings Inc. (NASDAQ:DLTH) but similarly valued. These stocks are Computer Programs & Systems, Inc. (NASDAQ:CPSI), Barrett Business Services, Inc. (NASDAQ:BBSI), Puma Biotechnology Inc (NASDAQ:PBYI), Carriage Services, Inc. (NYSE:CSV), Voyager Therapeutics, Inc. (NASDAQ:VYGR), Jernigan Capital Inc (NYSE:JCAP), and Prothena Corporation plc (NASDAQ:PRTA). All of these stocks' market caps match DLTH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CPSI,10,16006,-1 BBSI,13,53216,0 PBYI,17,125131,-1 CSV,11,39956,-1 VYGR,10,49897,-4 JCAP,9,27556,-3 PRTA,23,207482,-2 Average,13.3,74178,-1.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.3 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $14 million in DLTH's case. Prothena Corporation plc (NASDAQ:PRTA) is the most popular stock in this table. On the other hand Jernigan Capital Inc (NYSE:JCAP) is the least popular one with only 9 bullish hedge fund positions. Duluth Holdings Inc. (NASDAQ:DLTH) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DLTH is 42.6. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 surpassed the market again by 16.2 percentage points. Unfortunately DLTH wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DLTH investors were disappointed as the stock returned -4.6% since the end of September (through 12/8) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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