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Hedge Funds Are Crazy About e.l.f. Beauty, Inc. (ELF)

Abigail Fisher

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 750 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is e.l.f. Beauty, Inc. (NYSE:ELF), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

e.l.f. Beauty, Inc. (NYSE:ELF) has experienced an increase in hedge fund interest recently. Our calculations also showed that ELF isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_30602" align="aligncenter" width="489"] Philippe Laffont of Coatue Management[/caption]

COATUE MANAGEMENT

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's check out the new hedge fund action surrounding e.l.f. Beauty, Inc. (NYSE:ELF).

What have hedge funds been doing with e.l.f. Beauty, Inc. (NYSE:ELF)?

Heading into the fourth quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in ELF a year ago. With hedgies' capital changing hands, there exists an "upper tier" of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

The largest stake in e.l.f. Beauty, Inc. (NYSE:ELF) was held by Marathon Partners, which reported holding $74.4 million worth of stock at the end of September. It was followed by Portolan Capital Management with a $37.1 million position. Other investors bullish on the company included Driehaus Capital, Millennium Management, and D E Shaw. In terms of the portfolio weights assigned to each position Marathon Partners allocated the biggest weight to e.l.f. Beauty, Inc. (NYSE:ELF), around 28.17% of its 13F portfolio. Portolan Capital Management is also relatively very bullish on the stock, setting aside 4.18 percent of its 13F equity portfolio to ELF.

As one would reasonably expect, key hedge funds have been driving this bullishness. Marshall Wace, managed by Paul Marshall and Ian Wace, initiated the biggest position in e.l.f. Beauty, Inc. (NYSE:ELF). Marshall Wace had $16.2 million invested in the company at the end of the quarter. Philippe Laffont's Coatue Management also made a $2.4 million investment in the stock during the quarter. The other funds with brand new ELF positions are Warren Lammert's Granite Point Capital, Paul Tudor Jones's Tudor Investment Corp, and Michael Gelband's ExodusPoint Capital.

Let's go over hedge fund activity in other stocks similar to e.l.f. Beauty, Inc. (NYSE:ELF). We will take a look at NV5 Global, Inc. (NASDAQ:NVEE), Amneal Pharmaceuticals, Inc. (NYSE:AMRX), Phreesia, Inc. (NYSE:PHR), and Community Healthcare Trust Inc (NYSE:CHCT). This group of stocks' market valuations are closest to ELF's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NVEE,14,23017,2 AMRX,9,8377,-1 PHR,9,33757,9 CHCT,10,88796,2 Average,10.5,38487,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $238 million in ELF's case. NV5 Global, Inc. (NASDAQ:NVEE) is the most popular stock in this table. On the other hand Amneal Pharmaceuticals, Inc. (NYSE:AMRX) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks e.l.f. Beauty, Inc. (NYSE:ELF) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ELF wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ELF were disappointed as the stock returned -5.4% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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

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