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Was The Smart Money Right About Revolve Group (RVLV)?

Debasis Saha

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Revolve Group, Inc. (NYSE:RVLV) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Revolve Group, Inc. (NYSE:RVLV) has seen a decrease in hedge fund sentiment lately. Our calculations also showed that RVLV isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

[caption id="attachment_26340" align="aligncenter" width="400"] Ken Griffin of Citadel Investment Group[/caption]

CITADEL INVESTMENT GROUP

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader's corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's take a glance at the key hedge fund action encompassing Revolve Group, Inc. (NYSE:RVLV).

How have hedgies been trading Revolve Group, Inc. (NYSE:RVLV)?

At Q4's end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -31% from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position in RVLV a year ago. With hedge funds' sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Is RVLV A Good Stock To Buy?

The largest stake in Revolve Group, Inc. (NYSE:RVLV) was held by Zevenbergen Capital Investments, which reported holding $13 million worth of stock at the end of September. It was followed by Whale Rock Capital Management with a $9 million position. Other investors bullish on the company included Parian Global Management, Berylson Capital Partners, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Parian Global Management allocated the biggest weight to Revolve Group, Inc. (NYSE:RVLV), around 1.93% of its 13F portfolio. Berylson Capital Partners is also relatively very bullish on the stock, designating 1.84 percent of its 13F equity portfolio to RVLV.

Due to the fact that Revolve Group, Inc. (NYSE:RVLV) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there were a few fund managers that slashed their positions entirely by the end of the third quarter. Interestingly, James Woodson Davis's Woodson Capital Management dumped the largest stake of the "upper crust" of funds watched by Insider Monkey, worth about $10.5 million in stock. Andrew Sandler's fund, Sandler Capital Management, also dropped its stock, about $4.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds by the end of the third quarter.

Let's go over hedge fund activity in other stocks similar to Revolve Group, Inc. (NYSE:RVLV). These stocks are Continental Building Products Inc (NYSE:CBPX), Coherus Biosciences Inc (NASDAQ:CHRS), PBF Logistics LP (NYSE:PBFX), and Douglas Dynamics Inc (NYSE:PLOW). All of these stocks' market caps resemble RVLV's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CBPX,22,168360,3 CHRS,32,235119,9 PBFX,3,1492,2 PLOW,12,33329,1 Average,17.25,109575,3.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $110 million. That figure was $37 million in RVLV's case. Coherus Biosciences Inc (NASDAQ:CHRS) is the most popular stock in this table. On the other hand PBF Logistics LP (NYSE:PBFX) is the least popular one with only 3 bullish hedge fund positions. Revolve Group, Inc. (NYSE:RVLV) is not the least popular stock in this group but hedge fund interest is still below average. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately RVLV wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); RVLV investors were disappointed as the stock returned -44.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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