Do Hedge Funds and Insiders Love Mattress Firm Holding Corp (MFRM)?

Mattress Firm Holding Corp (NASDAQ:MFRM) investors should be aware of a decrease in enthusiasm from smart money of late.

If you’d ask most market participants, hedge funds are viewed as slow, outdated investment vehicles of the past. While there are greater than 8000 funds with their doors open today, we choose to focus on the crème de la crème of this group, around 450 funds. It is estimated that this group controls the lion’s share of the smart money’s total capital, and by monitoring their top stock picks, we have uncovered a few investment strategies that have historically outpaced the market. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have beaten the S&P 500 index by 23.3 percentage points in 8 months (see the details here).

Equally as integral, bullish insider trading activity is a second way to parse down the stock market universe. As the old adage goes: there are many motivations for a bullish insider to downsize shares of his or her company, but only one, very clear reason why they would behave bullishly. Many empirical studies have demonstrated the useful potential of this strategy if investors know where to look (learn more here).

Consequently, let’s take a gander at the key action surrounding Mattress Firm Holding Corp (NASDAQ:MFRM).

How are hedge funds trading Mattress Firm Holding Corp (NASDAQ:MFRM)?

Heading into Q2, a total of 7 of the hedge funds we track were long in this stock, a change of -22% from the first quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully.

Of the funds we track, Alan Fournier’s Pennant Capital Management had the most valuable position in Mattress Firm Holding Corp (NASDAQ:MFRM), worth close to $69.7 million, accounting for 1.4% of its total 13F portfolio. The second largest stake is held by CR Intrinsic Investors, managed by SAC Subsidiary, which held a $11.7 million position; 0.4% of its 13F portfolio is allocated to the company. Some other peers that hold long positions include Steven Cohen’s SAC Capital Advisors, and D. E. Shaw’s D E Shaw.

Because Mattress Firm Holding Corp (NASDAQ:MFRM) has witnessed a declination in interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedge funds that elected to cut their positions entirely heading into Q2. Intriguingly, John Murphy’s Alydar Capital sold off the biggest stake of the 450+ funds we track, valued at about $2.7 million in stock., and Mark Kingdon of Kingdon Capital was right behind this move, as the fund dumped about $2.5 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 2 funds heading into Q2.

How have insiders been trading Mattress Firm Holding Corp (NASDAQ:MFRM)?

Bullish insider trading is particularly usable when the primary stock in question has experienced transactions within the past 180 days. Over the last 180-day time period, Mattress Firm Holding Corp (NASDAQ:MFRM) has experienced zero unique insiders buying, and 5 insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to Mattress Firm Holding Corp (NASDAQ:MFRM). These stocks are Tempur-Pedic International Inc. (NYSE:TPX), American Woodmark Corporation (NASDAQ:AMWD), Ethan Allen Interiors Inc. (NYSE:ETH), La-Z-Boy Incorporated (NYSE:LZB), and Select Comfort Corp. (NASDAQ:SCSS). This group of stocks belong to the home furnishings & fixtures industry and their market caps match MFRM’s market cap.