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Is Potbelly (PBPB) A Good Stock To Buy Now?

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Reymerlyn Martin
·6 min read
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In this article we will analyze whether Potbelly Corp (NASDAQ:PBPB) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Is Potbelly (PBPB) a good stock to buy now? Money managers were selling. The number of long hedge fund bets dropped by 2 recently. Potbelly Corp (NASDAQ:PBPB) was in 7 hedge funds' portfolios at the end of September. The all time high for this statistics is 16. Our calculations also showed that PBPB 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 9 hedge funds in our database with PBPB positions at the end of the second quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most investors, hedge funds are perceived as underperforming, outdated financial tools of the past. While there are more than 8000 funds in operation at present, Our experts look at the crème de la crème of this group, about 850 funds. It is estimated that this group of investors have their hands on the majority of the hedge fund industry's total asset base, and by following their inimitable stock picks, Insider Monkey has deciphered a few investment strategies that have historically outpaced the broader indices. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .

Peter Rathjens Arrowstreet Capital 394
Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

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. Now let's check out the recent hedge fund action regarding Potbelly Corp (NASDAQ:PBPB).

What does smart money think about Potbelly Corp (NASDAQ:PBPB)?

At Q3's end, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -22% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PBPB over the last 21 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.

The largest stake in Potbelly Corp (NASDAQ:PBPB) was held by Renaissance Technologies, which reported holding $7.2 million worth of stock at the end of September. It was followed by Archon Capital Management with a $6.7 million position. Other investors bullish on the company included Ancora Advisors, Arrowstreet Capital, and D E Shaw. In terms of the portfolio weights assigned to each position Archon Capital Management allocated the biggest weight to Potbelly Corp (NASDAQ:PBPB), around 1.35% of its 13F portfolio. Ancora Advisors is also relatively very bullish on the stock, earmarking 0.19 percent of its 13F equity portfolio to PBPB.

Seeing as Potbelly Corp (NASDAQ:PBPB) has witnessed bearish sentiment from the smart money, logic holds that there is a sect of hedgies that decided to sell off their full holdings in the third quarter. It's worth mentioning that Israel Englander's Millennium Management dumped the biggest stake of the "upper crust" of funds monitored by Insider Monkey, valued at close to $0.7 million in stock, and Donald Sussman's Paloma Partners was right behind this move, as the fund cut about $0.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds in the third quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Potbelly Corp (NASDAQ:PBPB) but similarly valued. These stocks are Oasis Petroleum Inc. (NASDAQ:OAS), Amesite Inc. (NASDAQ:AMST), Malvern Bancorp, Inc. (NASDAQ:MLVF), DLH Holdings Corp. (NASDAQ:DLHC), Phoenix New Media Ltd (NYSE:FENG), Electromed, Inc. (NYSE:ELMD), and Peoples Bancorp of North Carolina, Inc. (NASDAQ:PEBK). This group of stocks' market caps are closest to PBPB's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OAS,10,5446,-7 AMST,1,293,1 MLVF,7,21196,-3 DLHC,8,35961,3 FENG,8,4029,2 ELMD,6,5692,2 PEBK,2,3804,-1 Average,6,10917,-0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $20 million in PBPB's case. Oasis Petroleum Inc. (NASDAQ:OAS) is the most popular stock in this table. On the other hand Amesite Inc. (NASDAQ:AMST) is the least popular one with only 1 bullish hedge fund positions. Potbelly Corp (NASDAQ:PBPB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PBPB is 49.5. 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 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 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Hedge funds were also right about betting on PBPB as the stock returned 26.1% since the end of Q3 (through 12/2) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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