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Is ZUMZ A Good Stock To Buy Now?

·6 min read

In this article we will take a look at whether hedge funds think Zumiez Inc. (NASDAQ:ZUMZ) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is ZUMZ a good stock to buy now? Zumiez Inc. (NASDAQ:ZUMZ) was in 20 hedge funds' portfolios at the end of September. The all time high for this statistic is 24. ZUMZ has seen an increase in support from the world's most elite money managers recently. There were 19 hedge funds in our database with ZUMZ holdings at the end of June. Our calculations also showed that ZUMZ isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ian Wace Marshall Wace
Ian Wace Marshall Wace

Ian Wace of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Keeping this in mind let's check out the new hedge fund action regarding Zumiez Inc. (NASDAQ:ZUMZ).

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

At third quarter's end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. On the other hand, there were a total of 21 hedge funds with a bullish position in ZUMZ a year ago. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

According to Insider Monkey's hedge fund database, Renaissance Technologies has the number one position in Zumiez Inc. (NASDAQ:ZUMZ), worth close to $7.3 million, amounting to less than 0.1%% of its total 13F portfolio. Coming in second is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $4.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions include Chuck Royce's Royce & Associates, Paul Marshall and Ian Wace's Marshall Wace LLP and George McCabe's Portolan Capital Management. In terms of the portfolio weights assigned to each position Portolan Capital Management allocated the biggest weight to Zumiez Inc. (NASDAQ:ZUMZ), around 0.42% of its 13F portfolio. Granite Point Capital is also relatively very bullish on the stock, dishing out 0.18 percent of its 13F equity portfolio to ZUMZ.

Consequently, key money managers have been driving this bullishness. Portolan Capital Management, managed by George McCabe, initiated the most valuable position in Zumiez Inc. (NASDAQ:ZUMZ). Portolan Capital Management had $3.7 million invested in the company at the end of the quarter. John Overdeck and David Siegel's Two Sigma Advisors also initiated a $0.8 million position during the quarter. The other funds with brand new ZUMZ positions are Dmitry Balyasny's Balyasny Asset Management, Donald Sussman's Paloma Partners, and Peter Muller's PDT Partners.

Let's go over hedge fund activity in other stocks similar to Zumiez Inc. (NASDAQ:ZUMZ). We will take a look at H&E Equipment Services, Inc. (NASDAQ:HEES), Kforce Inc. (NASDAQ:KFRC), Everi Holdings Inc (NYSE:EVRI), Phibro Animal Health Corp (NASDAQ:PAHC), IMAX Corporation (NYSE:IMAX), Limelight Networks, Inc. (NASDAQ:LLNW), and Hudson Ltd. (NYSE:HUD). This group of stocks' market values are closest to ZUMZ's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HEES,14,38898,-4 KFRC,19,48975,3 EVRI,26,158471,3 PAHC,15,44143,0 IMAX,18,71718,-1 LLNW,17,74271,-7 HUD,16,83748,-5 Average,17.9,74318,-1.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.9 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $41 million in ZUMZ's case. Everi Holdings Inc (NYSE:EVRI) is the most popular stock in this table. On the other hand H&E Equipment Services, Inc. (NASDAQ:HEES) is the least popular one with only 14 bullish hedge fund positions. Zumiez Inc. (NASDAQ:ZUMZ) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ZUMZ is 56. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on ZUMZ as the stock returned 34.9% since the end of Q3 (through 12/14) 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.

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