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Were Hedge Funds Right About The Children’s Place Inc. (PLCE)?

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Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about The Children's Place Inc. (NASDAQ:PLCE) in this article.

The Children's Place Inc. (NASDAQ:PLCE) investors should pay attention to a decrease in enthusiasm from smart money recently. The Children's Place Inc. (NASDAQ:PLCE) was in 18 hedge funds' portfolios at the end of March. The all time high for this statistic is 29. There were 24 hedge funds in our database with PLCE positions at the end of the fourth quarter. Our calculations also showed that PLCE 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.

Och-Ziff Capital Management
Och-Ziff Capital Management

Daniel Och, Founder of OZ 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. Now we're going to take a look at the fresh hedge fund action regarding The Children's Place Inc. (NASDAQ:PLCE).

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

At the end of March, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PLCE over the last 23 quarters. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Is PLCE A Good Stock To Buy?
Is PLCE A Good Stock To Buy?

More specifically, D E Shaw was the largest shareholder of The Children's Place Inc. (NASDAQ:PLCE), with a stake worth $37.1 million reported as of the end of March. Trailing D E Shaw was Arrowstreet Capital, which amassed a stake valued at $24.2 million. Citadel Investment Group, Balyasny Asset Management, and Renaissance Technologies 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 Wexford Capital allocated the biggest weight to The Children's Place Inc. (NASDAQ:PLCE), around 0.35% of its 13F portfolio. Portolan Capital Management is also relatively very bullish on the stock, dishing out 0.27 percent of its 13F equity portfolio to PLCE.

Since The Children's Place Inc. (NASDAQ:PLCE) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there was a specific group of hedgies who were dropping their full holdings heading into Q2. At the top of the heap, Wilmot B. Harkey and Daniel Mack's Nantahala Capital Management cut the largest stake of the 750 funds tracked by Insider Monkey, worth close to $12.6 million in stock, and Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital was right behind this move, as the fund cut about $5.9 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 6 funds heading into Q2.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as The Children's Place Inc. (NASDAQ:PLCE) but similarly valued. These stocks are DHT Holdings Inc (NYSE:DHT), Kearny Financial Corp. (NASDAQ:KRNY), Customers Bancorp Inc (NYSE:CUBI), Danaos Corporation (NYSE:DAC), Heritage Financial Corporation (NASDAQ:HFWA), Vaxcyte, Inc. (NASDAQ:PCVX), and Cerus Corporation (NASDAQ:CERS). This group of stocks' market values match PLCE's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DHT,22,105754,4 KRNY,17,119727,0 CUBI,15,55455,4 DAC,12,122088,1 HFWA,5,19017,-1 PCVX,10,187033,-2 CERS,15,265595,1 Average,13.7,124953,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.7 hedge funds with bullish positions and the average amount invested in these stocks was $125 million. That figure was $154 million in PLCE's case. DHT Holdings Inc (NYSE:DHT) is the most popular stock in this table. On the other hand Heritage Financial Corporation (NASDAQ:HFWA) is the least popular one with only 5 bullish hedge fund positions. The Children's Place Inc. (NASDAQ:PLCE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PLCE is 55.9. 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 PLCE as the stock returned 24% 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.