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At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Planet Fitness Inc (NYSE:PLNT) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Hedge fund interest in Planet Fitness Inc (NYSE:PLNT) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that PLNT isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare PLNT to other stocks including CubeSmart (NYSE:CUBE), Enel Chile S.A. (NYSE:ENIC), and Yamana Gold Inc. (NYSE:AUY) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 56 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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 precious metals prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. With all of this in mind let's check out the fresh hedge fund action surrounding Planet Fitness Inc (NYSE:PLNT).
How have hedgies been trading Planet Fitness Inc (NYSE:PLNT)?
At the end of the second quarter, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 38 hedge funds with a bullish position in PLNT a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, SRS Investment Management held the most valuable stake in Planet Fitness Inc (NYSE:PLNT), which was worth $299.8 million at the end of the third quarter. On the second spot was Steadfast Capital Management which amassed $217.6 million worth of shares. Tybourne Capital Management, Samlyn Capital, and Arrowstreet 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 Pelham Capital allocated the biggest weight to Planet Fitness Inc (NYSE:PLNT), around 7.17% of its 13F portfolio. Broad Bay Capital is also relatively very bullish on the stock, setting aside 7.01 percent of its 13F equity portfolio to PLNT.
Due to the fact that Planet Fitness Inc (NYSE:PLNT) has faced falling interest from the entirety of the hedge funds we track, we can see that there lies a certain "tier" of hedge funds who were dropping their positions entirely last quarter. It's worth mentioning that David Gallo's Valinor Management LLC dumped the largest stake of all the hedgies tracked by Insider Monkey, comprising close to $62.5 million in stock, and Robert Boucai's Newbrook Capital Advisors was right behind this move, as the fund dropped about $29.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks similar to Planet Fitness Inc (NYSE:PLNT). These stocks are CubeSmart (NYSE:CUBE), Enel Chile S.A. (NYSE:ENIC), Yamana Gold Inc. (NYSE:AUY), Vedanta Ltd (NYSE:VEDL), Hess Midstream LP (NYSE:HESM), Tech Data Corp (NASDAQ:TECD), and IAA, Inc. (NYSE:IAA). This group of stocks' market valuations are closest to PLNT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CUBE,24,211307,6 ENIC,5,15818,-3 AUY,18,407399,4 VEDL,9,46209,-2 HESM,6,11545,1 TECD,17,307359,-22 IAA,43,1326469,4 Average,17.4,332301,-1.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.4 hedge funds with bullish positions and the average amount invested in these stocks was $332 million. That figure was $1254 million in PLNT's case. IAA, Inc. (NYSE:IAA) is the most popular stock in this table. On the other hand Enel Chile S.A. (NYSE:ENIC) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Planet Fitness Inc (NYSE:PLNT) is more popular among hedge funds. Our overall hedge fund sentiment score for PLNT is 85. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately PLNT wasn't nearly as popular as these 10 stocks and hedge funds that were betting on PLNT were disappointed as the stock returned 0.4% since the end of the second 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 10 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.