Do Hedge Funds Love Party City Holdco Inc (PRTY)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtParty City Holdco Inc (NYSE:PRTY) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Party City Holdco Inc (NYSE:PRTY) the right investment to pursue these days? The best stock pickers were becoming less confident. The number of long hedge fund bets shrunk by 6 lately. Our calculations also showed that PRTY 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.

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 S&P 500 ETFs by 58 percentage points since March 2017 (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.

Wil Harkey Nantahala Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a peek at the new hedge fund action encompassing Party City Holdco Inc (NYSE:PRTY).

How are hedge funds trading Party City Holdco Inc (NYSE:PRTY)?

Heading into the second quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -38% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in PRTY a year ago. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Is PRTY A Good Stock To Buy?

Among these funds, CAS Investment Partners held the most valuable stake in Party City Holdco Inc (NYSE:PRTY), which was worth $4.9 million at the end of the third quarter. On the second spot was Nantahala Capital Management which amassed $3.3 million worth of shares. Millennium Management, Two Sigma Advisors, and Stepstone Group 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 Stepstone Group allocated the biggest weight to Party City Holdco Inc (NYSE:PRTY), around 2.43% of its 13F portfolio. CAS Investment Partners is also relatively very bullish on the stock, dishing out 1.08 percent of its 13F equity portfolio to PRTY.

Due to the fact that Party City Holdco Inc (NYSE:PRTY) has witnessed declining sentiment from hedge fund managers, logic holds that there was a specific group of hedge funds that decided to sell off their positions entirely heading into Q4. It’s worth mentioning that Derek C. Schrier’s Indaba Capital Management dumped the largest investment of the “upper crust” of funds watched by Insider Monkey, comprising close to $5 million in stock. William C. Martin’s fund, Raging Capital Management, also dropped its stock, about $2.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Party City Holdco Inc (NYSE:PRTY). We will take a look at SeaDrill Limited (NYSE:SDRL), Contura Energy, Inc. (NYSE:CTRA), Baudax Bio, Inc. (NASDAQ:BXRX), and Mediwound Ltd (NASDAQ:MDWD). All of these stocks’ market caps resemble PRTY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SDRL 10 8600 -2
CTRA 16 14591 -3
BXRX 11 10267 1
MDWD 1 730 -1
Average 9.5 8547 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $11 million in PRTY’s case. Contura Energy, Inc. (NYSE:CTRA) is the most popular stock in this table. On the other hand Mediwound Ltd (NASDAQ:MDWD) is the least popular one with only 1 bullish hedge fund positions. Party City Holdco Inc (NYSE:PRTY) 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 PRTY as the stock returned 225.3% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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