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Hedge Funds Glad They Pulled Out Of DSW Inc. (DSW)

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The shares of DSW Inc. (NYSE:DSW) fell by more than 11% yesterday after the company missed the market’s sales estimates for the second quarter. The footwear retailer reported earnings per share of $0.42 over sales of $627.2 million for the second quarter. While its earnings were in line with analysts’ expectations, its sales missed estimates by $9.8 million. On a year-over-year basis, the sales of DSW Inc. (NYSE:DSW) improved by 6.8%, whereas its earnings per share were up by 13.5% in comparison with the second quarter of last year. Its comparable sales were up by a more modest 1.8% during the second quarter, with DSW Inc. (NYSE:DSW) having 449 operational stores, as of August 1. The footwear retailed reaffirmed its yearly earnings outlook of $1.80 to $1.90 per share.

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Analysts at Sterne Agee CRT lowered their price target for DSW Inc. (NYSE:DSW), to $39.00 from $45.00, following the release, while maintaining a “Buy” rating for its shares. The shares of the retailer have declined by 24.52% year-to-date. The smart money was bearish on the stock of DSW Inc. (NYSE:DSW) during the second quarter, with 36 funds we track having aggregate holdings of $581.26 million in the stock. The overall value of the positions in the footwear company fell by 21% during the second quarter. The shares of DSW Inc. (NYSE:DSW) were down by 9.52% during the period, revealing that funds sold off over 10% of their collective holdings.

At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning 118% and beating the market by more than 60 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise rather than large-cap stocks.

According to some research reports, analysis of insider activity can help in identifying profit-making opportunities within the target company. The insiders at DSW Inc. were bearish on the stock, with at least 12 insider sales in 2015. Deborah L. Ferree, Vice Chairman, Chief Merchandising Officer of DSW Inc., has sold 240,178 shares of the company in 2015. It should be noted that insider sales are not as strong an indicator of future stock performance as insider purchases however.

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