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Were Hedge Funds Right About Piling Into Petmed Express Inc (PETS)?

Abigail Fisher

"Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn't by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today's darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn't attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal," said Vilas Fund in its Q1 investor letter. We aren't sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That's why we believe it would be worthwhile to take a look at the hedge fund sentiment on Petmed Express Inc (NASDAQ:PETS) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Petmed Express Inc (NASDAQ:PETS) investors should pay attention to an increase in enthusiasm from smart money recently. PETS was in 17 hedge funds' portfolios at the end of the second quarter of 2019. There were 16 hedge funds in our database with PETS positions at the end of the previous quarter. Our calculations also showed that PETS isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

PETS_nov2019

In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources  like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Let's take a glance at the new hedge fund action surrounding Petmed Express Inc (NASDAQ:PETS).

How are hedge funds trading Petmed Express Inc (NASDAQ:PETS)?

At Q2's end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PETS over the last 16 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

David Harding

More specifically, Renaissance Technologies was the largest shareholder of Petmed Express Inc (NASDAQ:PETS), with a stake worth $30 million reported as of the end of March. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $11.6 million. Newtyn Management, GLG Partners, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

As aggregate interest increased, key hedge funds have been driving this bullishness. Tudor Investment Corp, managed by Paul Tudor Jones, assembled the most valuable position in Petmed Express Inc (NASDAQ:PETS). Tudor Investment Corp had $0.4 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also made a $0.4 million investment in the stock during the quarter. The other funds with brand new PETS positions are Matthew Tewksbury's Stevens Capital Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Petmed Express Inc (NASDAQ:PETS) but similarly valued. These stocks are Yintech Investment Holdings Limited (NASDAQ:YIN), BioLife Solutions, Inc. (NASDAQ:BLFS), Clearwater Paper Corp (NYSE:CLW), and Radiant Logistics, Inc. (NYSE:RLGT). This group of stocks' market values match PETS's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position YIN,1,264,-1 BLFS,13,76163,-2 CLW,8,18809,-1 RLGT,12,11827,0 Average,8.5,26766,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $68 million in PETS's case. BioLife Solutions, Inc. (NASDAQ:BLFS) is the most popular stock in this table. On the other hand Yintech Investment Holdings Limited (NASDAQ:YIN) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Petmed Express Inc (NASDAQ:PETS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on PETS as the stock returned 16.8% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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