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Was The Smart Money Smart About Dave & Buster’s Entertainment (PLAY)?

Reymerlyn Martin

Hedge funds don't get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don't realize is that 100% of the passive funds didn't see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY).

Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) shares haven't seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 19 hedge funds' portfolios at the end of the fourth quarter of 2019. At the end of this article we will also compare PLAY to other stocks including NGM Biopharmaceuticals, Inc. (NASDAQ:NGM), Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT), and FB Financial Corporation (NYSE:FBK) to get a better sense of its popularity.

According to most investors, hedge funds are seen as slow, outdated investment vehicles of years past. While there are more than 8000 funds in operation at the moment, Our researchers hone in on the elite of this club, about 850 funds. These investment experts shepherd most of the smart money's total capital, and by following their unrivaled stock picks, Insider Monkey has found a number of investment strategies that have historically outperformed the market. Insider Monkey's flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

[caption id="attachment_30602" align="aligncenter" width="400"] Philippe Laffont of Coatue Management[/caption]

COATUE MANAGEMENT

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the "next Amazon" in this video; again we are listening. 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 we're going to check out the fresh hedge fund action surrounding Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY).

What have hedge funds been doing with Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY)?

At the end of the fourth quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in PLAY a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Scott Ross's Hill Path Capital has the most valuable position in Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY), worth close to $86.3 million, amounting to 9.1% of its total 13F portfolio. Coming in second is Senator Investment Group, led by Doug Silverman and Alexander Klabin, holding a $60.3 million position; 1.7% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism include Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Israel Englander's Millennium Management and Mubadala Investment's MIC Capital Partners. In terms of the portfolio weights assigned to each position Hill Path Capital allocated the biggest weight to Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY), around 9.09% of its 13F portfolio. MIC Capital Partners is also relatively very bullish on the stock, earmarking 5.4 percent of its 13F equity portfolio to PLAY.

Seeing as Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) has faced a decline in interest from the smart money, it's easy to see that there exists a select few fund managers who were dropping their entire stakes in the third quarter. Intriguingly, Derek C. Schrier's Indaba Capital Management cut the biggest position of the "upper crust" of funds monitored by Insider Monkey, valued at an estimated $25.5 million in stock, and Noam Gottesman's GLG Partners was right behind this move, as the fund cut about $12.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) but similarly valued. We will take a look at NGM Biopharmaceuticals, Inc. (NASDAQ:NGM), Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT), FB Financial Corporation (NYSE:FBK), and NOW Inc (NYSE:DNOW). This group of stocks' market caps are similar to PLAY's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NGM,7,48026,-2 RCKT,21,303923,7 FBK,5,80718,-2 DNOW,21,106408,6 Average,13.5,134769,2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $135 million. That figure was $237 million in PLAY's case. Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT) is the most popular stock in this table. On the other hand FB Financial Corporation (NYSE:FBK) is the least popular one with only 5 bullish hedge fund positions. Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 PLAY wasn't nearly as popular as these 10 stocks and hedge funds that were betting on PLAY were disappointed as the stock returned -66.7% 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 many of these stocks already outperformed the market so far this year. 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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