Is El Pollo LoCo Holdings Inc (LOCO) A Good Stock To Buy?

You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund investors like Carl Icahn and George Soros hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.

El Pollo LoCo Holdings Inc (NASDAQ:LOCO) was in 8 hedge funds’ portfolios at the end of September. LOCO has seen a decrease in support from the world’s most successful money managers recently. There were 11 hedge funds in our database with LOCO holdings at the end of June. At the end of this article we will also compare LOCO to other stocks including WMIH Corp (OTCMKTS:WMIH), Lion Biotechnologies Inc (NASDAQ:LBIO), and ReTailMeNot Inc (NASDAQ:SALE) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

What does the smart money think about El Pollo LoCo Holdings Inc (NASDAQ:LOCO)?

At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a 27% drop from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in LOCO at the beginning of this year, so hedge fund sentiment is still slightly positive in 2016. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Renaissance Technologies has the number one position in El Pollo LoCo Holdings Inc (NASDAQ:LOCO), worth close to $5.5 million. The second most bullish fund manager is SG Capital Management, led by Ken Grossman and Glen Schneider, which holds a $4 million position; 1.2% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish comprise George McCabe’s Portolan Capital Management and Peter Muller’s PDT Partners. We should note that SG Capital Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-micro-cap stocks.

Seeing as El Pollo LoCo Holdings Inc (NASDAQ:LOCO) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of money managers that decided to sell off their entire stakes in the third quarter. It’s worth mentioning that Ken Griffin’s Citadel Investment Group sold off the largest position of all the investors watched by Insider Monkey, valued at close to $0.5 million in call options, and Mark Coe’s Coe Capital Management was right behind this move, as the fund sold off about $0.3 million worth of shares.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as El Pollo LoCo Holdings Inc (NASDAQ:LOCO) but similarly valued. We will take a look at WMIH Corp (OTCMKTS:WMIH), Lion Biotechnologies Inc (NASDAQ:LBIO), ReTailMeNot Inc (NASDAQ:SALE), and PTC Therapeutics, Inc. (NASDAQ:PTCT). All of these stocks’ market caps are closest to LOCO’s market cap.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $105 million. That figure was $14 million in LOCO’s case. WMIH Corp (OTCMKTS:WMIH) is the most popular stock in this table. On the other hand PTC Therapeutics, Inc. (NASDAQ:PTCT) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks El Pollo LoCo Holdings Inc (NASDAQ:LOCO) is even less popular than PTCT. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock.

Disclosure: None