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Freshpet Inc (FRPT) Fell Out Of Favor With Hedge Funds

·6 min read

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on March 31st. We at Insider Monkey have made an extensive database of more than 866 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Freshpet Inc (NASDAQ:FRPT) based on those filings.

Is Freshpet Inc (NASDAQ:FRPT) a great investment now? Investors who are in the know were selling. The number of bullish hedge fund positions shrunk by 6 in recent months. Freshpet Inc (NASDAQ:FRPT) was in 19 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 25. Our calculations also showed that FRPT isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Richard Driehaus of Driehaus Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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. Now let's analyze the new hedge fund action regarding Freshpet Inc (NASDAQ:FRPT).

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

At Q1's end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FRPT over the last 23 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Is FRPT A Good Stock To Buy?
Is FRPT A Good Stock To Buy?

Among these funds, Rock Springs Capital Management held the most valuable stake in Freshpet Inc (NASDAQ:FRPT), which was worth $80.4 million at the end of the fourth quarter. On the second spot was Fisher Asset Management which amassed $33.5 million worth of shares. GLG Partners, Half Sky Capital, and Driehaus Capital 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 Half Sky Capital allocated the biggest weight to Freshpet Inc (NASDAQ:FRPT), around 4.79% of its 13F portfolio. Aubrey Capital Management is also relatively very bullish on the stock, designating 2.15 percent of its 13F equity portfolio to FRPT.

Seeing as Freshpet Inc (NASDAQ:FRPT) has experienced falling interest from the smart money, we can see that there lies a certain "tier" of money managers that elected to cut their positions entirely by the end of the first quarter. Intriguingly, Karim Abbadi and Edward McBride's Centiva Capital cut the largest position of all the hedgies tracked by Insider Monkey, valued at close to $1.5 million in stock. Peter Muller's fund, PDT Partners, also said goodbye to its stock, about $1 million worth. These moves are important to note, as aggregate hedge fund interest fell by 6 funds by the end of the first quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Freshpet Inc (NASDAQ:FRPT) but similarly valued. These stocks are Marriott Vacations Worldwide Corporation (NYSE:VAC), II-VI, Inc. (NASDAQ:IIVI), Sealed Air Corporation (NYSE:SEE), TCF Financial Corporation (NYSE:TCF), Starwood Property Trust, Inc. (NYSE:STWD), Royal Gold, Inc (NASDAQ:RGLD), and Sotera Health Company (NASDAQ:SHC). This group of stocks' market values are similar to FRPT's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VAC,24,604062,3 IIVI,39,267417,13 SEE,27,765215,-5 TCF,13,398544,-1 STWD,10,176663,-3 RGLD,17,237026,-9 SHC,36,609684,9 Average,23.7,436944,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.7 hedge funds with bullish positions and the average amount invested in these stocks was $437 million. That figure was $210 million in FRPT's case. II-VI, Inc. (NASDAQ:IIVI) is the most popular stock in this table. On the other hand Starwood Property Trust, Inc. (NYSE:STWD) is the least popular one with only 10 bullish hedge fund positions. Freshpet Inc (NASDAQ:FRPT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FRPT is 37.3. 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. 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 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 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately FRPT wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); FRPT investors were disappointed as the stock returned -3.5% since the end of March (through 7/16) 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 most of these stocks already outperformed the market in 2021.

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