Is Interface, Inc. (NASDAQ:TILE) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Interface, Inc. (NASDAQ:TILE) undervalued? Money managers are becoming hopeful. The number of bullish hedge fund positions moved up by 2 in recent months. Our calculations also showed that TILE isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). TILE was in 14 hedge funds' portfolios at the end of September. There were 12 hedge funds in our database with TILE holdings at the end of the previous quarter. Video: Click the image to 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 hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_193003" align="aligncenter" width="450"] Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. Let's take a look at the recent hedge fund action regarding Interface, Inc. (NASDAQ:TILE).
What does smart money think about Interface, Inc. (NASDAQ:TILE)?
Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TILE over the last 17 quarters. With hedge funds' sentiment swirling, there exists a few notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
The largest stake in Interface, Inc. (NASDAQ:TILE) was held by Ariel Investments, which reported holding $16.1 million worth of stock at the end of September. It was followed by D E Shaw with a $7.1 million position. Other investors bullish on the company included Citadel Investment Group, Royce & Associates, and Marshall Wace. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to Interface, Inc. (NASDAQ:TILE), around 0.69% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, setting aside 0.44 percent of its 13F equity portfolio to TILE.
Now, specific money managers have jumped into Interface, Inc. (NASDAQ:TILE) headfirst. Marshall Wace, managed by Paul Marshall and Ian Wace, initiated the most valuable position in Interface, Inc. (NASDAQ:TILE). Marshall Wace had $3.5 million invested in the company at the end of the quarter. Peter Algert and Kevin Coldiron's Algert Coldiron Investors also initiated a $1.2 million position during the quarter. The following funds were also among the new TILE investors: Matthew Hulsizer's PEAK6 Capital Management, Donald Sussman's Paloma Partners, and Benjamin A. Smith's Laurion Capital Management.
Let's now review hedge fund activity in other stocks similar to Interface, Inc. (NASDAQ:TILE). These stocks are ShockWave Medical, Inc. (NASDAQ:SWAV), Washington Trust Bancorp, Inc. (NASDAQ:WASH), FARO Technologies, Inc. (NASDAQ:FARO), and HealthStream, Inc. (NASDAQ:HSTM). All of these stocks' market caps are similar to TILE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SWAV,10,51360,3 WASH,8,29820,1 FARO,8,47745,1 HSTM,11,41631,-2 Average,9.25,42639,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $45 million in TILE's case. HealthStream, Inc. (NASDAQ:HSTM) is the most popular stock in this table. On the other hand Washington Trust Bancorp, Inc. (NASDAQ:WASH) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Interface, Inc. (NASDAQ:TILE) 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. Hedge funds were also right about betting on TILE as the stock returned 16.7% during the first two months of Q4 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.
Disclosure: None. This article was originally published at Insider Monkey.