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Were Hedge Funds Right About Boot Barn Holdings Inc (BOOT)?

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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Boot Barn Holdings Inc (NYSE:BOOT).

Boot Barn Holdings Inc (NYSE:BOOT) was in 18 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 28. BOOT has experienced a decrease in hedge fund interest recently. There were 20 hedge funds in our database with BOOT positions at the end of the fourth quarter. Our calculations also showed that BOOT isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

David Harding
David Harding

David Harding of Winton Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. With all of this in mind let's take a gander at the fresh hedge fund action encompassing Boot Barn Holdings Inc (NYSE:BOOT).

Do Hedge Funds Think BOOT Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in BOOT a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is BOOT A Good Stock To Buy?
Is BOOT A Good Stock To Buy?

More specifically, Driehaus Capital was the largest shareholder of Boot Barn Holdings Inc (NYSE:BOOT), with a stake worth $32.7 million reported as of the end of March. Trailing Driehaus Capital was Citadel Investment Group, which amassed a stake valued at $13 million. PEAK6 Capital Management, Sonic Capital, and Deep Field Asset Management 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 Deep Field Asset Management allocated the biggest weight to Boot Barn Holdings Inc (NYSE:BOOT), around 4.53% of its 13F portfolio. Sonic Capital is also relatively very bullish on the stock, earmarking 3.86 percent of its 13F equity portfolio to BOOT.

Since Boot Barn Holdings Inc (NYSE:BOOT) has witnessed declining sentiment from the entirety of the hedge funds we track, it's safe to say that there is a sect of fund managers that slashed their full holdings last quarter. At the top of the heap, Dmitry Balyasny's Balyasny Asset Management cut the biggest investment of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $4.9 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund dropped about $4.6 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds last quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Boot Barn Holdings Inc (NYSE:BOOT) but similarly valued. We will take a look at Black Stone Minerals LP (NYSE:BSM), Yext, Inc. (NYSE:YEXT), BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX), Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), GCP Applied Technologies Inc. (NYSE:GCP), HudBay Minerals Inc (NYSE:HBM), and Sangamo Therapeutics, Inc. (NASDAQ:SGMO). This group of stocks' market values resemble BOOT's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BSM,5,13316,-2 YEXT,13,48039,2 BCRX,22,348348,-4 IRWD,28,449729,2 GCP,13,407749,-4 HBM,15,389989,-4 SGMO,17,91681,-3 Average,16.1,249836,-1.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.1 hedge funds with bullish positions and the average amount invested in these stocks was $250 million. That figure was $102 million in BOOT's case. Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) is the most popular stock in this table. On the other hand Black Stone Minerals LP (NYSE:BSM) is the least popular one with only 5 bullish hedge fund positions. Boot Barn Holdings Inc (NYSE:BOOT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BOOT is 50.5. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and still beat the market by 10.1 percentage points. Hedge funds were also right about betting on BOOT as the stock returned 31.7% since the end of Q1 (through 7/23) 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.