Hedge Funds Are Souring On Texas Roadhouse Inc (TXRH)

In this article we will analyze whether Texas Roadhouse Inc (NASDAQ:TXRH) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Texas Roadhouse Inc (NASDAQ:TXRH) has seen a decrease in support from the world’s most elite money managers recently. Texas Roadhouse Inc (NASDAQ:TXRH) was in 22 hedge funds’ portfolios at the end of March. The all time high for this statistic is 28. Our calculations also showed that TXRH isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Gabriel Plotkin Melvin Capital Management

Gabriel Plotkin of Melvin Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to take a look at the fresh hedge fund action encompassing Texas Roadhouse Inc (NASDAQ:TXRH).

Do Hedge Funds Think TXRH Is A Good Stock To Buy Now?

At the end of March, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in TXRH over the last 23 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Among these funds, Melvin Capital Management held the most valuable stake in Texas Roadhouse Inc (NASDAQ:TXRH), which was worth $255.8 million at the end of the fourth quarter. On the second spot was AQR Capital Management which amassed $32.1 million worth of shares. Melvin Capital Management, Arrowstreet Capital, and ZWEIG DIMENNA 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 Melvin Capital Management allocated the biggest weight to Texas Roadhouse Inc (NASDAQ:TXRH), around 1.46% of its 13F portfolio. ZWEIG DIMENNA PARTNERS is also relatively very bullish on the stock, dishing out 1.1 percent of its 13F equity portfolio to TXRH.

Since Texas Roadhouse Inc (NASDAQ:TXRH) has experienced falling interest from the smart money, we can see that there exists a select few hedgies who sold off their full holdings last quarter. At the top of the heap, Brandon Haley’s Holocene Advisors sold off the largest position of all the hedgies followed by Insider Monkey, comprising close to $25.8 million in stock. Leon Shaulov’s fund, Maplelane Capital, also dropped its stock, about $24.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 6 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Texas Roadhouse Inc (NASDAQ:TXRH) but similarly valued. These stocks are C3.ai, Inc. (NYSE:AI), First Financial Bankshares Inc (NASDAQ:FFIN), Old Republic International Corporation (NYSE:ORI), Rexford Industrial Realty Inc (NYSE:REXR), Boyd Gaming Corporation (NYSE:BYD), Shift4 Payments, Inc. (NYSE:FOUR), and Cameco Corporation (NYSE:CCJ). All of these stocks’ market caps match TXRH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AI 27 222209 -10
FFIN 11 31041 -1
ORI 24 377223 -3
REXR 13 75514 -4
BYD 22 299026 -6
FOUR 33 538716 -5
CCJ 30 492804 5
Average 22.9 290933 -3.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.9 hedge funds with bullish positions and the average amount invested in these stocks was $291 million. That figure was $383 million in TXRH’s case. Shift4 Payments, Inc. (NYSE:FOUR) is the most popular stock in this table. On the other hand First Financial Bankshares Inc (NASDAQ:FFIN) is the least popular one with only 11 bullish hedge fund positions. Texas Roadhouse Inc (NASDAQ:TXRH) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TXRH is 47.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately TXRH wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); TXRH investors were disappointed as the stock returned -1.2% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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