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In this article we are going to use hedge fund sentiment as a tool and determine whether Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) 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.
Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) was in 28 hedge funds' portfolios at the end of June. The all time high for this statistic is 28. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. PLAY shareholders have witnessed an increase in hedge fund sentiment in recent months. There were 24 hedge funds in our database with PLAY holdings at the end of March. Our calculations also showed that PLAY isn't among the 30 most popular stocks among hedge funds (click for Q2 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 79 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.
Ricky Sandler of Eminence Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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. With all of this in mind let's review the key hedge fund action regarding Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY).
Do Hedge Funds Think PLAY Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the first quarter of 2020. On the other hand, there were a total of 12 hedge funds with a bullish position in PLAY a year ago. With hedgies' sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) was held by Hill Path Capital, which reported holding $180.6 million worth of stock at the end of June. It was followed by Citadel Investment Group with a $56.3 million position. Other investors bullish on the company included Scopus Asset Management, Arrowstreet Capital, and MIC Capital Partners. In terms of the portfolio weights assigned to each position Hill Path Capital allocated the biggest weight to Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY), around 10.35% of its 13F portfolio. MIC Capital Partners is also relatively very bullish on the stock, designating 4.92 percent of its 13F equity portfolio to PLAY.
As industrywide interest jumped, specific money managers were leading the bulls' herd. Scopus Asset Management, managed by Alexander Mitchell, created the most valuable call position in Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY). Scopus Asset Management had $16.2 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also made a $15.9 million investment in the stock during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel's Two Sigma Advisors, Paul Marshall and Ian Wace's Marshall Wace LLP, and Mika Toikka's AlphaCrest Capital Management.
Let's now take a look at hedge fund activity in other stocks similar to Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY). We will take a look at Lordstown Motors Corp. (NASDAQ:RIDE), Trustmark Corp (NASDAQ:TRMK), Arcus Biosciences, Inc. (NYSE:RCUS), Washington Real Estate Investment Trust (NYSE:WRE), iRhythm Technologies, Inc. (NASDAQ:IRTC), Inovio Pharmaceuticals Inc (NYSE:INO), and ACM Research, Inc. (NASDAQ:ACMR). This group of stocks' market valuations match PLAY's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RIDE,12,27117,0 TRMK,10,13769,3 RCUS,22,403654,-5 WRE,7,37013,-3 IRTC,22,215499,3 INO,8,37439,-3 ACMR,18,273523,-1 Average,14.1,144002,-0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.1 hedge funds with bullish positions and the average amount invested in these stocks was $144 million. That figure was $409 million in PLAY's case. Arcus Biosciences, Inc. (NYSE:RCUS) is the most popular stock in this table. On the other hand Washington Real Estate Investment Trust (NYSE:WRE) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) is more popular among hedge funds. Our overall hedge fund sentiment score for PLAY is 89. 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 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 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. Unfortunately PLAY wasn't nearly as popular as these 5 stocks and hedge funds that were betting on PLAY were disappointed as the stock returned -8.8% since the end of the second quarter (through 10/15) 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 since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.