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Hedge Funds Never Been Less Bullish On Carrols Restaurant Group, Inc. (TAST)

Debasis Saha

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Carrols Restaurant Group, Inc. (NASDAQ:TAST) and determine whether the smart money was really smart about this stock.

Carrols Restaurant Group, Inc. (NASDAQ:TAST) has seen a decrease in enthusiasm from smart money of late. Our calculations also showed that TAST isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). 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 58 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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_338410" align="aligncenter" width="400"] Jeffrey Bronchick of Cove Street Capital[/caption]

Jeffrey Bronchick - Cove Street Capital
Jeffrey Bronchick - Cove Street Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's view the fresh hedge fund action surrounding Carrols Restaurant Group, Inc. (NASDAQ:TAST).

What have hedge funds been doing with Carrols Restaurant Group, Inc. (NASDAQ:TAST)?

Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TAST over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is TAST A Good Stock To Buy?
Is TAST A Good Stock To Buy?

More specifically, Private Capital Management was the largest shareholder of Carrols Restaurant Group, Inc. (NASDAQ:TAST), with a stake worth $5.2 million reported as of the end of September. Trailing Private Capital Management was Royce & Associates, which amassed a stake valued at $4 million. Cannell Capital, Springbok Capital, and Millennium Management 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 Private Capital Management allocated the biggest weight to Carrols Restaurant Group, Inc. (NASDAQ:TAST), around 1.63% of its 13F portfolio. Cannell Capital is also relatively very bullish on the stock, setting aside 1.56 percent of its 13F equity portfolio to TAST.

Since Carrols Restaurant Group, Inc. (NASDAQ:TAST) has experienced falling interest from the aggregate hedge fund industry, it's easy to see that there is a sect of funds who sold off their positions entirely by the end of the first quarter. Intriguingly, Jeffrey Bronchick's Cove Street Capital cut the largest investment of all the hedgies monitored by Insider Monkey, totaling about $5.5 million in stock. James Thomas Berylson's fund, Berylson Capital Partners, also said goodbye to its stock, about $3.2 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds by the end of the first quarter.

Let's go over hedge fund activity in other stocks similar to Carrols Restaurant Group, Inc. (NASDAQ:TAST). These stocks are Great Panther Mining Ltd (NYSE:GPL), Roadrunner Transportation Systems Inc (NYSE:RRTS), CRH Medical Corporation (NYSE:CRHM), and Fonar Corporation (NASDAQ:FONR). All of these stocks' market caps are closest to TAST's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GPL,5,1963,1 RRTS,4,88085,1 CRHM,7,16880,0 FONR,9,9212,0 Average,6.25,29035,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $14 million in TAST's case. Fonar Corporation (NASDAQ:FONR) is the most popular stock in this table. On the other hand Roadrunner Transportation Systems Inc (NYSE:RRTS) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Carrols Restaurant Group, Inc. (NASDAQ:TAST) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on TAST as the stock returned 165.9% in Q2 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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