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Hedge Funds Souring On Build-A-Bear Workshop, Inc (BBW)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Build-A-Bear Workshop, Inc (NYSE:BBW) and determine whether hedge funds skillfully traded this stock.

Build-A-Bear Workshop, Inc (NYSE:BBW) was in 10 hedge funds’ portfolios at the end of the first quarter of 2020. BBW investors should pay attention to a decrease in support from the world’s most elite money managers recently. There were 11 hedge funds in our database with BBW holdings at the end of the previous quarter. Our calculations also showed that BBW 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 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’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.

Carlo Cannell

J. Carlo Cannell of Cannell Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a peek at the new hedge fund action regarding Build-A-Bear Workshop, Inc (NYSE:BBW).

Hedge fund activity in Build-A-Bear Workshop, Inc (NYSE:BBW)

Heading into the second quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the fourth quarter of 2019. By comparison, 11 hedge funds held shares or bullish call options in BBW a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is BBW A Good Stock To Buy?

The largest stake in Build-A-Bear Workshop, Inc (NYSE:BBW) was held by Solas Capital Management, which reported holding $2.1 million worth of stock at the end of September. It was followed by Pacifica Capital Investments with a $1.2 million position. Other investors bullish on the company included Cannell Capital, Renaissance Technologies, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Solas Capital Management allocated the biggest weight to Build-A-Bear Workshop, Inc (NYSE:BBW), around 2.32% of its 13F portfolio. Pacifica Capital Investments is also relatively very bullish on the stock, setting aside 0.64 percent of its 13F equity portfolio to BBW.

Due to the fact that Build-A-Bear Workshop, Inc (NYSE:BBW) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of hedgies who were dropping their entire stakes by the end of the first quarter. It’s worth mentioning that Ken Griffin’s Citadel Investment Group dropped the biggest position of all the hedgies tracked by Insider Monkey, worth about $0.1 million in stock, and David Harding’s Winton Capital Management was right behind this move, as the fund dropped about $0.1 million worth. These transactions are important to note, as total hedge fund interest dropped by 1 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Build-A-Bear Workshop, Inc (NYSE:BBW) but similarly valued. We will take a look at BioHiTech Global, Inc. (NASDAQ:BHTG), National Holdings Corporation (NASDAQ:NHLD), BroadVision, Inc. (NASDAQ:BVSN), and IRIDEX Corporation (NASDAQ:IRIX). This group of stocks’ market valuations are similar to BBW’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BHTG 1 41 -1
NHLD 1 78 0
BVSN 3 767 2
IRIX 2 1434 0
Average 1.75 580 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 1.75 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $5 million in BBW’s case. BroadVision, Inc. (NASDAQ:BVSN) is the most popular stock in this table. On the other hand BioHiTech Global, Inc. (NASDAQ:BHTG) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Build-A-Bear Workshop, Inc (NYSE:BBW) 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 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on BBW as the stock returned 52.4% in Q2 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.