Hedge Funds Never Been Less Bullish On Red Robin Gourmet Burgers, Inc. (RRGB)

In this article you are going to find out whether hedge funds think Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) an exceptional investment now? The smart money is becoming less confident. The number of bullish hedge fund bets went down by 4 in recent months. Our calculations also showed that RRGB 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). RRGB was in 7 hedge funds’ portfolios at the end of the first quarter of 2020. There were 11 hedge funds in our database with RRGB holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Eric Singer VIEX Capital

Eric Singer of VIEX Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. 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 let’s view the new hedge fund action regarding Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB).

How are hedge funds trading Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB)?

At Q1’s end, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -36% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in RRGB a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is RRGB A Good Stock To Buy?

Among these funds, Citadel Investment Group held the most valuable stake in Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB), which was worth $3.3 million at the end of the third quarter. On the second spot was VIEX Capital Advisors which amassed $1.9 million worth of shares. Arrowstreet Capital, GMT Capital, and Maverick 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 Factorial Partners allocated the biggest weight to Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB), around 0.29% of its 13F portfolio. GMT Capital is also relatively very bullish on the stock, setting aside 0.05 percent of its 13F equity portfolio to RRGB.

Seeing as Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) has witnessed falling interest from the smart money, we can see that there was a specific group of hedgies who sold off their entire stakes in the first quarter. At the top of the heap, Eric Singer’s VIEX Capital Advisors dumped the largest position of all the hedgies tracked by Insider Monkey, comprising an estimated $24.9 million in stock. Joe Milano’s fund, Greenhouse Funds, also said goodbye to its stock, about $6.4 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 4 funds in the first quarter.

Let’s go over hedge fund activity in other stocks similar to Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB). These stocks are Community Bankers Trust Corp. (NASDAQ:ESXB), Resolute Forest Products Inc (NYSE:RFP), Genasys Inc. (NASDAQ:GNSS), and Points International Ltd (NASDAQ:PCOM). This group of stocks’ market caps are closest to RRGB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ESXB 7 14001 2
RFP 9 43202 -5
GNSS 6 11852 0
PCOM 10 18498 3
Average 8 21888 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $6 million in RRGB’s case. Points International Ltd (NASDAQ:PCOM) is the most popular stock in this table. On the other hand Genasys Inc. (NASDAQ:GNSS) is the least popular one with only 6 bullish hedge fund positions. Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) is not the least popular stock in this group but hedge fund interest is still below 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 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on RRGB as the stock returned 70.7% during the second quarter and outperformed the market by an even larger margin.

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