Here is What Hedge Funds Really Think About e.l.f. Beauty, Inc. (ELF)

The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Hedge funds’ top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 24.4% through September 30th, vs. a gain of 20.4% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards e.l.f. Beauty, Inc. (NYSE:ELF), and what that likely means for the prospects of the company and its stock.

Hedge fund interest in e.l.f. Beauty, Inc. (NYSE:ELF) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare ELF to other stocks including William Lyon Homes (NYSE:WLH), Zealand Pharma A/S (NASDAQ:ZEAL), and Tutor Perini Corporation (NYSE:TPC) to get a better sense of its popularity.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Richard Driehaus

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the fresh hedge fund action regarding e.l.f. Beauty, Inc. (NYSE:ELF).

What does smart money think about e.l.f. Beauty, Inc. (NYSE:ELF)?

Heading into the third quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the first quarter of 2019. By comparison, 10 hedge funds held shares or bullish call options in ELF a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

No of Hedge Funds with ELF Positions

The largest stake in e.l.f. Beauty, Inc. (NYSE:ELF) was held by Marathon Partners, which reported holding $62.9 million worth of stock at the end of March. It was followed by Portolan Capital Management with a $40 million position. Other investors bullish on the company included Bares Capital Management, Millennium Management, and Driehaus Capital.

Judging by the fact that e.l.f. Beauty, Inc. (NYSE:ELF) has witnessed a decline in interest from the smart money, logic holds that there were a few hedgies who sold off their full holdings heading into Q3. Interestingly, Dmitry Balyasny’s Balyasny Asset Management said goodbye to the largest stake of all the hedgies watched by Insider Monkey, comprising close to $6.1 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund cut about $2.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to e.l.f. Beauty, Inc. (NYSE:ELF). We will take a look at William Lyon Homes (NYSE:WLH), Zealand Pharma A/S (NASDAQ:ZEAL), Tutor Perini Corporation (NYSE:TPC), and United Financial Bancorp, Inc. (NASDAQ:UBNK). This group of stocks’ market caps resemble ELF’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WLH 24 151171 1
ZEAL 2 21766 0
TPC 6 8759 -6
UBNK 9 70766 1
Average 10.25 63116 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $63 million. That figure was $199 million in ELF’s case. William Lyon Homes (NYSE:WLH) is the most popular stock in this table. On the other hand Zealand Pharma A/S (NASDAQ:ZEAL) is the least popular one with only 2 bullish hedge fund positions. e.l.f. Beauty, Inc. (NYSE:ELF) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on ELF as the stock returned 24.2% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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