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Is ELF Stock A Buy or Sell?

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Abigail Fisher
·6 min read
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Is e.l.f. Beauty, Inc. (NYSE:ELF) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is ELF stock a buy? e.l.f. Beauty, Inc. (NYSE:ELF) shareholders have witnessed an increase in activity from the world's largest hedge funds lately. e.l.f. Beauty, Inc. (NYSE:ELF) was in 29 hedge funds' portfolios at the end of December. The all time high for this statistic is 24. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ELF isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 124 percentage points since March 2017 (see the details here).

Sander Gerber of Hudson Bay Capital
Sander Gerber of Hudson Bay Capital

Sander Gerber of Hudson Bay Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we heard that billionaire Peter Thiel is backing this psychedelic-drug startup. So, we are taking a closer look at this space. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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. With all of this in mind we're going to go over the latest hedge fund action regarding e.l.f. Beauty, Inc. (NYSE:ELF).

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

Heading into the first quarter of 2021, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ELF over the last 22 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Among these funds, Millennium Management held the most valuable stake in e.l.f. Beauty, Inc. (NYSE:ELF), which was worth $47.6 million at the end of the fourth quarter. On the second spot was Renaissance Technologies which amassed $41.5 million worth of shares. Lomas Capital Management, Portolan Capital Management, and Bayberry Capital Partners 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 Bayberry Capital Partners allocated the biggest weight to e.l.f. Beauty, Inc. (NYSE:ELF), around 7.97% of its 13F portfolio. Marathon Partners is also relatively very bullish on the stock, designating 7.25 percent of its 13F equity portfolio to ELF.

As aggregate interest increased, key money managers have been driving this bullishness. Chiron Investment Management, managed by Ryan Caldwell, assembled the most valuable position in e.l.f. Beauty, Inc. (NYSE:ELF). Chiron Investment Management had $14.3 million invested in the company at the end of the quarter. Sander Gerber's Hudson Bay Capital Management also initiated a $4 million position during the quarter. The other funds with new positions in the stock are Michael Rockefeller and Karl Kroeker's Woodline Partners, Paul Tudor Jones's Tudor Investment Corp, and Mika Toikka's AlphaCrest Capital Management.

Let's also examine hedge fund activity in other stocks similar to e.l.f. Beauty, Inc. (NYSE:ELF). These stocks are nLIGHT, Inc. (NASDAQ:LASR), MacroGenics Inc (NASDAQ:MGNX), Denbury Inc. (NYSE:DEN), FBL Financial Group, Inc. (NYSE:FFG), Radware Ltd. (NASDAQ:RDWR), AAR Corp. (NYSE:AIR), and Nurix Therapeutics, Inc. (NASDAQ:NRIX). This group of stocks' market caps are similar to ELF's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LASR,20,101975,7 MGNX,23,367365,-1 DEN,21,390326,12 FFG,8,30946,-3 RDWR,12,300979,2 AIR,15,99899,-3 NRIX,11,248966,-1 Average,15.7,220065,1.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.7 hedge funds with bullish positions and the average amount invested in these stocks was $220 million. That figure was $320 million in ELF's case. MacroGenics Inc (NASDAQ:MGNX) is the most popular stock in this table. On the other hand FBL Financial Group, Inc. (NYSE:FFG) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks e.l.f. Beauty, Inc. (NYSE:ELF) is more popular among hedge funds. Our overall hedge fund sentiment score for ELF is 90. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks returned 12.2% in 2021 through April 12th but still managed to beat the market by 1.5 percentage points. Hedge funds were also right about betting on ELF as the stock returned 12.5% since the end of December (through 4/12) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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