Hedge Funds Have Never Been This Bullish On Ulta Beauty, Inc. (ULTA)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at 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. In this article we look at what those investors think of Ulta Beauty, Inc. (NASDAQ:ULTA).

Ulta Beauty, Inc. (NASDAQ:ULTA) shareholders have witnessed an increase in hedge fund sentiment in recent months. ULTA was in 46 hedge funds’ portfolios at the end of March. There were 41 hedge funds in our database with ULTA holdings at the end of the previous quarter. Our calculations also showed that ULTA 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 44 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Gabriel Plotkin Melvin Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. 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. With all of this in mind we’re going to go over the key hedge fund action encompassing Ulta Beauty, Inc. (NASDAQ:ULTA).

Hedge fund activity in Ulta Beauty, Inc. (NASDAQ:ULTA)

At the end of the first quarter, a total of 46 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the previous quarter. By comparison, 43 hedge funds held shares or bullish call options in ULTA a year ago. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Is ULTA A Good Stock To Buy?

Among these funds, Select Equity Group held the most valuable stake in Ulta Beauty, Inc. (NASDAQ:ULTA), which was worth $244.9 million at the end of the third quarter. On the second spot was Rivulet Capital which amassed $92.4 million worth of shares. D E Shaw, Two Creeks Capital Management, and Citadel Investment 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 Rivulet Capital allocated the biggest weight to Ulta Beauty, Inc. (NASDAQ:ULTA), around 5.91% of its 13F portfolio. Two Creeks Capital Management is also relatively very bullish on the stock, setting aside 5.37 percent of its 13F equity portfolio to ULTA.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. Candlestick Capital Management, managed by Jack Woodruff, assembled the biggest position in Ulta Beauty, Inc. (NASDAQ:ULTA). Candlestick Capital Management had $52.9 million invested in the company at the end of the quarter. Karthik Sarma’s SRS Investment Management also made a $23.9 million investment in the stock during the quarter. The other funds with brand new ULTA positions are Gabriel Plotkin’s Melvin Capital Management, Andrew Kurita’s Kettle Hill Capital Management, and Louis Bacon’s Moore Global Investments.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Ulta Beauty, Inc. (NASDAQ:ULTA) but similarly valued. These stocks are Liberty Media Corporation (NASDAQ:LSXMA), Loews Corporation (NYSE:L), W.P. Carey Inc. REIT (NYSE:WPC), and Ventas, Inc. (NYSE:VTR). All of these stocks’ market caps are similar to ULTA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LSXMA 48 1087620 -2
L 21 107581 -3
WPC 22 33963 1
VTR 25 337381 -4
Average 29 391636 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $392 million. That figure was $926 million in ULTA’s case. Liberty Media Corporation (NASDAQ:LSXMA) is the most popular stock in this table. On the other hand Loews Corporation (NYSE:L) is the least popular one with only 21 bullish hedge fund positions. Ulta Beauty, Inc. (NASDAQ:ULTA) 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 7.9% in 2020 through May 22nd but still beat the market by 15.6 percentage points. Hedge funds were also right about betting on ULTA as the stock returned 25.6% in Q2 (through May 22nd) 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.