Did Hedge Funds Make The Right Call On CarGurus, Inc. (CARG)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of CarGurus, Inc. (NASDAQ:CARG) based on that data and determine whether they were really smart about the stock.

CarGurus, Inc. (NASDAQ:CARG) has seen a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that CARG isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

In the financial world there are plenty of metrics market participants put to use to size up their holdings. A couple of the most underrated metrics are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the best picks of the elite fund managers can outperform the S&P 500 by a healthy margin (see the details here).

Mike Hellman of HMI Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. With all of this in mind we’re going to view the key hedge fund action surrounding CarGurus, Inc. (NASDAQ:CARG).

How have hedgies been trading CarGurus, Inc. (NASDAQ:CARG)?

Heading into the second quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CARG over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Among these funds, HMI Capital held the most valuable stake in CarGurus, Inc. (NASDAQ:CARG), which was worth $140.2 million at the end of the third quarter. On the second spot was Hound Partners which amassed $111 million worth of shares. Matrix Capital Management, Blacksheep Fund Management, and Cat Rock Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Blacksheep Fund Management allocated the biggest weight to CarGurus, Inc. (NASDAQ:CARG), around 14.7% of its 13F portfolio. Hound Partners is also relatively very bullish on the stock, earmarking 10.35 percent of its 13F equity portfolio to CARG.

Since CarGurus, Inc. (NASDAQ:CARG) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of hedge funds who sold off their positions entirely heading into Q4. Intriguingly, Brian Gootzeit and Andrew Frank’s StackLine Partners said goodbye to the biggest position of the “upper crust” of funds tracked by Insider Monkey, valued at close to $18.9 million in stock, and Andrew Bellas’s General Equity Partners was right behind this move, as the fund dumped about $9.8 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 7 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to CarGurus, Inc. (NASDAQ:CARG). These stocks are WNS (Holdings) Limited (NYSE:WNS), Kodiak Sciences Inc (NASDAQ:KOD), Barnes Group Inc. (NYSE:B), and Box, Inc. (NYSE:BOX). This group of stocks’ market valuations are closest to CARG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WNS 17 184501 -3
KOD 12 770396 1
B 11 14286 0
BOX 34 487198 -1
Average 18.5 364095 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $364 million. That figure was $485 million in CARG’s case. Box, Inc. (NYSE:BOX) is the most popular stock in this table. On the other hand Barnes Group Inc. (NYSE:B) is the least popular one with only 11 bullish hedge fund positions. CarGurus, Inc. (NASDAQ:CARG) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on CARG as the stock returned 33.8% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Follow Cargurus Inc. (NASDAQ:CARG)

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