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Hedge Funds Aren’t Crazy About Fitbit Inc (FIT) Anymore

Insider Monkey finished processing more than 700 13F filings made by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of September 30th. In this article we are going to take a look at smart money sentiment towards Fitbit Inc (NYSE:FIT).

Is Fitbit Inc (NYSE:FIT) undervalued? The best stock pickers are in a pessimistic mood. The number of bullish hedge fund positions decreased by 3 recently. Our calculations also showed that FIT isn’t among the 30 most popular stocks among hedge funds. FIT was in 17 hedge funds’ portfolios at the end of the third quarter of 2018. There were 20 hedge funds in our database with FIT holdings at the end of the previous quarter.

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 market by 18 percentage points since May 2014 through December 3, 2018 (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

Let’s view the key hedge fund action surrounding Fitbit Inc (NYSE:FIT).

How have hedgies been trading Fitbit Inc (NYSE:FIT)?

Heading into the fourth quarter of 2018, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FIT over the last 13 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

FIT_dec2018

Among these funds, Millennium Management held the most valuable stake in Fitbit Inc (NYSE:FIT), which was worth $25.9 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $18 million worth of shares. Moreover, Coatue Management, PDT Partners, and Rima Senvest Management were also bullish on Fitbit Inc (NYSE:FIT), allocating a large percentage of their portfolios to this stock.

Due to the fact that Fitbit Inc (NYSE:FIT) has faced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there is a sect of hedge funds that elected to cut their entire stakes last quarter. Intriguingly, David Costen Haley’s HBK Investments cut the largest stake of the “upper crust” of funds watched by Insider Monkey, comprising about $3.5 million in stock, and Sander Gerber’s Hudson Bay Capital Management was right behind this move, as the fund dropped about $3.5 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 3 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Fitbit Inc (NYSE:FIT) but similarly valued. We will take a look at OceanFirst Financial Corp. (NASDAQ:OCFC), Party City Holdco Inc (NYSE:PRTY), State Auto Financial Corporation (NASDAQ:STFC), and Sykes Enterprises, Incorporated (NASDAQ:SYKE). This group of stocks’ market valuations are closest to FIT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OCFC 15 91004 2
PRTY 18 118672 1
STFC 3 15345 0
SYKE 16 51727 3
Average 13 69187 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $69 million. That figure was $86 million in FIT’s case. Party City Holdco Inc (NYSE:PRTY) is the most popular stock in this table. On the other hand State Auto Financial Corporation (NASDAQ:STFC) is the least popular one with only 3 bullish hedge fund positions. Fitbit Inc (NYSE:FIT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PRTY might be a better candidate to consider a long position.

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

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