Zoe’s Kitchen Inc (ZOES): Hedge Fund Sentiment Unchanged

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.

Zoe’s Kitchen Inc (NYSE:ZOES) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds’ portfolios at the end of the third quarter of 2015. At the end of this article, we will also compare Zoe’s Kitchen Inc (NYSE:ZOES) to other stocks, including Cosan Limited (USA) (NYSE:CZZ), ACCO Brands Corporation (NYSE:ACCO), and First Bancorp (NYSE:FBP) to get a better sense of its popularity.

To the average investor, there are a lot of indicators stock market investors employ to evaluate their stock investments. A duo of the less utilized indicators are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the best picks of the top hedge fund managers can outperform their index-focused peers by a solid margin (see the details here).

Keeping this in mind, we’re going to take a look at the key action encompassing Zoe’s Kitchen Inc (NYSE:ZOES).

How are hedge funds trading Zoe’s Kitchen Inc (NYSE:ZOES)?

At the end of September, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, flat over the previous quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Miura Global Management, managed by Pasco Alfaro / Richard Tumure, holds the biggest position in Zoe’s Kitchen Inc (NYSE:ZOES). Miura Global Management has a $67.4 million position in the stock, comprising 3.7% of its 13F portfolio. The second most bullish fund manager is Columbus Circle Investors, led by Clifford Fox, holding a $15.2 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions comprise Joseph Mathias’ Concourse Capital Management, Daniel Lascano’s Lomas Capital Management and Drew Cupps’ Cupps Capital Management.

Seeing as Zoe’s Kitchen Inc (NYSE:ZOES) has experienced a declination in interest from the smart money, logic holds that there lies a certain “tier” of fund managers who sold off their entire stakes by the end of the third quarter. It’s worth mentioning that Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital dropped the largest investment of the “upper crust” of funds tracked by Insider Monkey, totaling about $13.9 million in stock, and Brian C. Freckmann’s Lyon Street Capital was right behind this move, as the fund cut about $1.7 million worth of shares. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Zoe’s Kitchen Inc (NYSE:ZOES) but similarly valued. We will take a look at Cosan Limited (USA) (NYSE:CZZ), ACCO Brands Corporation (NYSE:ACCO), First Bancorp (NYSE:FBP), and Navigant Consulting, Inc. (NYSE:NCI). All of these stocks’ market caps match ZOES’s market cap.

As you can see, these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $92 million. That figure was $125 million in Zoe’s Kitchen Inc (NYSE:ZOES)’s case. Cosan Limited (USA) (NYSE:CZZ) is the most popular stock in this table. On the other hand, ACCO Brands Corporation (NYSE:ACCO) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks, Zoe’s Kitchen Inc (NYSE:ZOES) is even less popular than ACCO Brands Corporation (NYSE:ACCO). 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. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case, more research is warranted.