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Is PETQ A Good Stock To Buy Now?

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·6 min read
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Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards PetIQ, Inc. (NASDAQ:PETQ) to find out whether there were any major changes in hedge funds' views.

Is PETQ a good stock to buy now? The best stock pickers were selling. The number of bullish hedge fund positions decreased by 3 in recent months. PetIQ, Inc. (NASDAQ:PETQ) was in 13 hedge funds' portfolios at the end of September. The all time high for this statistic is 22. Our calculations also showed that PETQ isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 16 hedge funds in our database with PETQ positions at the end of the second quarter.

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 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Israel Englander of Millennium Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. 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 website. Keeping this in mind we're going to take a peek at the latest hedge fund action surrounding PetIQ, Inc. (NASDAQ:PETQ).

Do Hedge Funds Think PETQ Is A Good Stock To Buy Now?

At the end of September, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the second quarter of 2020. On the other hand, there were a total of 16 hedge funds with a bullish position in PETQ a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is PETQ A Good Stock To Buy?
Is PETQ A Good Stock To Buy?

The largest stake in PetIQ, Inc. (NASDAQ:PETQ) was held by Shannon River Fund Management, which reported holding $35.9 million worth of stock at the end of September. It was followed by Yiheng Capital with a $22 million position. Other investors bullish on the company included Millennium Management, SG Capital Management, and Intrinsic Edge Capital. In terms of the portfolio weights assigned to each position Shannon River Fund Management allocated the biggest weight to PetIQ, Inc. (NASDAQ:PETQ), around 4.31% of its 13F portfolio. SG Capital Management is also relatively very bullish on the stock, setting aside 3.66 percent of its 13F equity portfolio to PETQ.

Judging by the fact that PetIQ, Inc. (NASDAQ:PETQ) has witnessed falling interest from the aggregate hedge fund industry, we can see that there exists a select few money managers who were dropping their entire stakes by the end of the third quarter. Intriguingly, Richard Driehaus's Driehaus Capital dumped the largest stake of the "upper crust" of funds followed by Insider Monkey, comprising about $13 million in stock, and David Harding's Winton Capital Management was right behind this move, as the fund dumped about $4.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds by the end of the third quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as PetIQ, Inc. (NASDAQ:PETQ) but similarly valued. We will take a look at Retrophin Inc (NASDAQ:RTRX), Phathom Pharmaceuticals, Inc. (NASDAQ:PHAT), Theravance Biopharma Inc (NASDAQ:TBPH), Accel Entertainment, Inc. (NYSE:ACEL), Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC), SecureWorks Corp. (NASDAQ:SCWX), and Hope Bancorp, Inc. (NASDAQ:HOPE). This group of stocks' market valuations are similar to PETQ's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RTRX,24,370363,-2 PHAT,6,375079,1 TBPH,17,291643,-1 ACEL,19,180025,3 TRHC,9,10137,1 SCWX,12,13864,-1 HOPE,17,53210,-2 Average,14.9,184903,-0.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.9 hedge funds with bullish positions and the average amount invested in these stocks was $185 million. That figure was $132 million in PETQ's case. Retrophin Inc (NASDAQ:RTRX) is the most popular stock in this table. On the other hand Phathom Pharmaceuticals, Inc. (NASDAQ:PHAT) is the least popular one with only 6 bullish hedge fund positions. PetIQ, Inc. (NASDAQ:PETQ) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PETQ is 39.2. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately PETQ wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PETQ investors were disappointed as the stock returned -5% since the end of September (through 12/8) 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 most of these stocks already outperformed the market in 2020.

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

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