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Were Hedge Funds Right About Noodles & Co (NDLS)?

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After several tireless days we have finished crunching the numbers from nearly 900 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of March 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Noodles & Co (NASDAQ:NDLS).

Noodles & Co (NASDAQ:NDLS) was in 18 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 22. NDLS shareholders have witnessed a decrease in activity from the world's largest hedge funds in recent months. There were 22 hedge funds in our database with NDLS holdings at the end of December. Our calculations also showed that NDLS isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Matthew Hulsizer PEAK6 Capital
Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

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 check out the latest hedge fund action surrounding Noodles & Co (NASDAQ:NDLS).

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

At Q1's end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in NDLS over the last 23 quarters. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Is NDLS A Good Stock To Buy?
Is NDLS A Good Stock To Buy?

Among these funds, Mill Road Capital Management held the most valuable stake in Noodles & Co (NASDAQ:NDLS), which was worth $49.7 million at the end of the fourth quarter. On the second spot was Woodson Capital Management which amassed $37.3 million worth of shares. Rip Road Capital, Royce & Associates, and Prospector Partners 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 Mill Road Capital Management allocated the biggest weight to Noodles & Co (NASDAQ:NDLS), around 16.44% of its 13F portfolio. Plaisance Capital is also relatively very bullish on the stock, designating 6.29 percent of its 13F equity portfolio to NDLS.

Since Noodles & Co (NASDAQ:NDLS) has faced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there exists a select few hedge funds that slashed their positions entirely last quarter. At the top of the heap, Frank Fu's CaaS Capital said goodbye to the largest position of the 750 funds tracked by Insider Monkey, valued at an estimated $2 million in stock, and Matthew Hulsizer's PEAK6 Capital Management was right behind this move, as the fund dumped about $0.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 4 funds last quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Noodles & Co (NASDAQ:NDLS) but similarly valued. We will take a look at Teekay Tankers Ltd. (NYSE:TNK), Viking Therapeutics, Inc. (NASDAQ:VKTX), HBT Financial, Inc. (NASDAQ:HBT), Priority Technology Holdings, Inc. (NASDAQ:PRTH), Jounce Therapeutics, Inc. (NASDAQ:JNCE), Inozyme Pharma, Inc. (NASDAQ:INZY), and Hemisphere Media Group Inc (NASDAQ:HMTV). This group of stocks' market caps are similar to NDLS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TNK,9,13611,0 VKTX,13,33211,0 HBT,9,26160,1 PRTH,1,1396,-1 JNCE,17,126572,5 INZY,11,140194,0 HMTV,10,35732,3 Average,10,53839,1.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $155 million in NDLS's case. Jounce Therapeutics, Inc. (NASDAQ:JNCE) is the most popular stock in this table. On the other hand Priority Technology Holdings, Inc. (NASDAQ:PRTH) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Noodles & Co (NASDAQ:NDLS) is more popular among hedge funds. Our overall hedge fund sentiment score for NDLS is 75.5. 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 managed to beat the market by 10.1 percentage points. Hedge funds were also right about betting on NDLS, though not to the same extent, as the stock returned 17.4% since the end of March (through July 23rd) and outperformed the market as well.

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