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Planet Fitness Inc (PLNT): Hedge Funds Cashing Out, But Still Bullish

Nina Todic

Is Planet Fitness Inc (NYSE:PLNT) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Planet Fitness Inc (NYSE:PLNT) was in 34 hedge funds' portfolios at the end of September. PLNT investors should pay attention to a decrease in hedge fund sentiment of late. There were 38 hedge funds in our database with PLNT holdings at the end of the previous quarter. Our calculations also showed that PLNT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). There are currently two ETFs with nearly 3% weights in PLNT: Innovator IBD Breakout Opportunities ETF (NYSE:BOUT) and Global X Health & Wellness Thematic ETF (NASDAQ:BFIT). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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_673876" align="aligncenter" width="473"] John Overdeck of Two Sigma Advisors[/caption]

John Overdeck of Two Sigma

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a look at the new hedge fund action surrounding Planet Fitness Inc (NYSE:PLNT).

How have hedgies been trading Planet Fitness Inc (NYSE:PLNT)?

At the end of the third quarter, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the second quarter of 2019. On the other hand, there were a total of 32 hedge funds with a bullish position in PLNT 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.

No of Hedge Funds with PLNT Positions

More specifically, Pelham Capital was the largest shareholder of Planet Fitness Inc (NYSE:PLNT), with a stake worth $92.8 million reported as of the end of September. Trailing Pelham Capital was Two Sigma Advisors, which amassed a stake valued at $63.4 million. Millennium Management, Arrowstreet Capital, and D E Shaw 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 10.42% of its portfolio. Emerson Point Capital is also relatively very bullish on the stock, earmarking 8 percent of its 13F equity portfolio to PLNT.

Seeing as Planet Fitness Inc (NYSE:PLNT) has faced falling interest from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of hedgies who were dropping their entire stakes last quarter. Intriguingly, James Parsons's Junto Capital Management said goodbye to the largest position of the 750 funds monitored by Insider Monkey, totaling close to $39.2 million in stock. James Crichton's fund, Hitchwood Capital Management, also said goodbye to its stock, about $32.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds last quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Planet Fitness Inc (NYSE:PLNT) but similarly valued. These stocks are Gerdau SA (NYSE:GGB), Huntsman Corporation (NYSE:HUN), SmileDirectClub, Inc. (NASDAQ:SDC), and Primerica, Inc. (NYSE:PRI). 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 GGB,9,95401,2 HUN,28,394601,-2 SDC,28,287514,28 PRI,23,340762,-3 Average,22,279570,6.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $280 million. That figure was $525 million in PLNT's case. Huntsman Corporation (NYSE:HUN) is the most popular stock in this table. On the other hand Gerdau SA (NYSE:GGB) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Planet Fitness Inc (NYSE:PLNT) 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 PLNT as the stock returned 27.7% 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.

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