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Do Hedge Funds Love Noodles & Co (NDLS)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Noodles & Co (NASDAQ:NDLS).

Is Noodles & Co (NASDAQ:NDLS) undervalued? The best stock pickers are getting more bullish. The number of long hedge fund bets went up by 2 lately. Our calculations also showed that NDLS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). NDLS was in 14 hedge funds’ portfolios at the end of September. There were 12 hedge funds in our database with NDLS holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

COATUE MANAGEMENT

Philippe Laffont of Coatue Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a peek at the latest hedge fund action regarding Noodles & Co (NASDAQ:NDLS).

Hedge fund activity in Noodles & Co (NASDAQ:NDLS)

Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NDLS over the last 17 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Among these funds, Mill Road Capital Management held the most valuable stake in Noodles & Co (NASDAQ:NDLS), which was worth $27.2 million at the end of the third quarter. On the second spot was Woodson Capital Management which amassed $18 million worth of shares. Tenzing Global Investors, Isomer Partners, and Prospector Partners 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 Mill Road Capital Management allocated the biggest weight to Noodles & Co (NASDAQ:NDLS), around 43.44% of its 13F portfolio. Tenzing Global Investors is also relatively very bullish on the stock, dishing out 5.38 percent of its 13F equity portfolio to NDLS.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Winton Capital Management, managed by David Harding, initiated the most valuable position in Noodles & Co (NASDAQ:NDLS). Winton Capital Management had $0.4 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $0.3 million position during the quarter. The only other fund with a new position in the stock is Philippe Laffont’s Coatue Management.

Let’s now take a look at hedge fund activity in other stocks similar to Noodles & Co (NASDAQ:NDLS). We will take a look at StarTek, Inc. (NYSE:SRT), Cambium Networks Corporation (NASDAQ:CMBM), Liquidity Services, Inc. (NASDAQ:LQDT), and Recro Pharma Inc (NASDAQ:REPH). This group of stocks’ market caps are closest to NDLS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SRT 4 6084 1
CMBM 7 6898 -4
LQDT 8 33497 1
REPH 12 50206 1
Average 7.75 24171 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $79 million in NDLS’s case. Recro Pharma Inc (NASDAQ:REPH) is the most popular stock in this table. On the other hand StarTek, Inc. (NYSE:SRT) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Noodles & Co (NASDAQ:NDLS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on NDLS as the stock returned 11.3% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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