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Hedge Fund Sentiment Is Stagnant On Pinnacle Entertainment Inc (PNK)

We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards Pinnacle Entertainment Inc (NYSE:PNK), and what that likely means for the prospects of the company and its stock.

Hedge fund interest in Pinnacle Entertainment Inc (NYSE:PNK) shares was flat during the third quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as H&E Equipment Services, Inc. (NASDAQ:HEES), Inovio Pharmaceuticals Inc (NYSEAMEX:INO), and EarthLink, Inc. (NASDAQ:ELNK) to gather more data points.

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What have hedge funds been doing with Pinnacle Entertainment Inc (NYSE:PNK)?

Heading into the fourth quarter of 2016, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from the second quarter of 2016, which followed a steep decline during the second quarter. 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).
Of the funds tracked by Insider Monkey, Driehaus Capital, managed by Richard Driehaus, holds the largest position in Pinnacle Entertainment Inc (NYSE:PNK). Driehaus Capital has a $70.4 million position in the stock, comprising 2.4% of its 13F portfolio. Sitting at the No. 2 spot is HG Vora Capital Management, led by Parag Vora, holding a $66 million position; the fund has 8.5% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism consist of Jeffrey Smith’s Starboard Value LP, Don Morgan’s Brigade Capital and Carson Yost’s Yost Capital Management.

Judging by the fact that Pinnacle Entertainment Inc (NYSE:PNK) has faced flat sentiment from the entirety of the hedge funds we track, we can see that there exists a select few hedge funds who sold off their full holdings heading into Q4. Interestingly, Daniel Lascano’s Lomas Capital Management dropped the largest stake of the “upper crust” of funds followed by Insider Monkey, worth close to $12.3 million in stock. Edward Goodnow’s fund, Goodnow Investment Group, also dumped its stock, about $3.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Pinnacle Entertainment Inc (NYSE:PNK) but similarly valued. We will take a look at H&E Equipment Services, Inc. (NASDAQ:HEES), Inovio Pharmaceuticals Inc (NYSEAMEX:INO), EarthLink, Inc. (NASDAQ:ELNK), and Nimble Storage Inc (NYSE:NMBL). This group of stocks’ market values are closest to PNK’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HEES 14 30917 3
INO 5 3606 -3
ELNK 20 97904 -2
NMBL 19 182228 5

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $79 million. That figure was $235 million in PNK’s case. EarthLink, Inc. (NASDAQ:ELNK) is the most popular stock in this table. On the other hand Inovio Pharmaceuticals Inc (NYSEAMEX:INO) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Pinnacle Entertainment Inc (NYSE:PNK) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio, despite the stagnating interest in it.

Disclosure: None

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