How do we determine whether Shake Shack Inc (NYSE:SHAK) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Hedge fund interest in Shake Shack Inc (NYSE:SHAK) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as First Midwest Bancorp Inc (NASDAQ:FMBI), NetScout Systems, Inc. (NASDAQ:NTCT), and RH (NYSE:RH) to gather more data points.
According to most stock holders, hedge funds are viewed as worthless, old financial tools of yesteryear. While there are over 8000 funds with their doors open at present, Our experts look at the leaders of this club, approximately 750 funds. These hedge fund managers watch over bulk of the smart money's total asset base, and by paying attention to their matchless investments, Insider Monkey has unsheathed many investment strategies that have historically defeated the market. Insider Monkey's flagship hedge fund strategy outpaced the S&P 500 index by around 5 percentage points per annum since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.
We're going to view the recent hedge fund action regarding Shake Shack Inc (NYSE:SHAK).
How are hedge funds trading Shake Shack Inc (NYSE:SHAK)?
At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SHAK over the last 15 quarters. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
The largest stake in Shake Shack Inc (NYSE:SHAK) was held by 12 West Capital Management, which reported holding $153.7 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $90.4 million position. Other investors bullish on the company included Balyasny Asset Management, Bridger Management, and Greenlea Lane Capital.
Judging by the fact that Shake Shack Inc (NYSE:SHAK) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there is a sect of fund managers who were dropping their entire stakes in the third quarter. It's worth mentioning that Matthew Hulsizer's PEAK6 Capital Management sold off the biggest investment of the "upper crust" of funds monitored by Insider Monkey, worth close to $2.9 million in stock, and Noam Gottesman's GLG Partners was right behind this move, as the fund dumped about $0.9 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks similar to Shake Shack Inc (NYSE:SHAK). We will take a look at First Midwest Bancorp Inc (NASDAQ:FMBI), NetScout Systems, Inc. (NASDAQ:NTCT), RH (NYSE:RH), and Trustmark Corp (NASDAQ:TRMK). This group of stocks' market valuations match SHAK's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FMBI,13,49554,1 NTCT,12,97736,-2 RH,36,260836,8 TRMK,11,37111,1 Average,18,111309,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $111 million. That figure was $381 million in SHAK's case. RH (NYSE:RH) is the most popular stock in this table. On the other hand Trustmark Corp (NASDAQ:TRMK) is the least popular one with only 11 bullish hedge fund positions. Shake Shack Inc (NYSE:SHAK) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on SHAK, though not to the same extent, as the stock returned 1.5% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.