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Hedge Funds Have Never Been This Bullish On Papa John’s International, Inc. (PZZA)

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Papa John’s International, Inc. (NASDAQ:PZZA) based on those filings.

Papa John’s International, Inc. (NASDAQ:PZZA) shareholders have witnessed an increase in activity from the world’s largest hedge funds of late. PZZA was in 29 hedge funds’ portfolios at the end of March. There were 28 hedge funds in our database with PZZA positions at the end of the previous quarter. Our calculations also showed that PZZA 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.

Richard Driehaus of Driehaus Capital

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to view the new hedge fund action regarding Papa John’s International, Inc. (NASDAQ:PZZA).

What does smart money think about Papa John’s International, Inc. (NASDAQ:PZZA)?

Heading into the second quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in PZZA over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Among these funds, Dorsal Capital Management held the most valuable stake in Papa John’s International, Inc. (NASDAQ:PZZA), which was worth $48 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $44.8 million worth of shares. Citadel Investment Group, Bares Capital Management, and Driehaus Capital 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 13D Management allocated the biggest weight to Papa John’s International, Inc. (NASDAQ:PZZA), around 5.18% of its 13F portfolio. Dorsal Capital Management is also relatively very bullish on the stock, dishing out 3.89 percent of its 13F equity portfolio to PZZA.

With a general bullishness amongst the heavyweights, key money managers have jumped into Papa John’s International, Inc. (NASDAQ:PZZA) headfirst. Sabrepoint Capital, managed by George Baxter, assembled the biggest position in Papa John’s International, Inc. (NASDAQ:PZZA). Sabrepoint Capital had $8 million invested in the company at the end of the quarter. Nick Thakore’s Diametric Capital also initiated a $3 million position during the quarter. The other funds with brand new PZZA positions are Steve Cohen’s Point72 Asset Management, Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, and Donald Sussman’s Paloma Partners.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Papa John’s International, Inc. (NASDAQ:PZZA) but similarly valued. We will take a look at Merit Medical Systems, Inc. (NASDAQ:MMSI), IGM Biosciences, Inc. (NASDAQ:IGMS), Afya Limited (NASDAQ:AFYA), and TeleTech Holdings, Inc. (NASDAQ:TTEC). This group of stocks’ market caps are similar to PZZA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MMSI 11 195740 -6
IGMS 14 517563 2
AFYA 8 54892 -1
TTEC 15 36684 -11
Average 12 201220 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $201 million. That figure was $251 million in PZZA’s case. TeleTech Holdings, Inc. (NASDAQ:TTEC) is the most popular stock in this table. On the other hand Afya Limited (NASDAQ:AFYA) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Papa John’s International, Inc. (NASDAQ:PZZA) is more popular among hedge funds. 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 returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on PZZA as the stock returned 46.4% so far in Q2 (through the end of May) 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.

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