Here is What Hedge Funds Think About Noodles & Co (NDLS)

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 Noodles & Co (NASDAQ:NDLS) and determine whether hedge funds skillfully traded this stock.

Noodles & Co (NASDAQ:NDLS) has seen an increase in support from the world’s most elite money managers of late. Noodles & Co (NASDAQ:NDLS) was in 18 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 20. Our calculations also showed that NDLS isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to check out the new hedge fund action encompassing Noodles & Co (NASDAQ:NDLS).

What have hedge funds been doing with Noodles & Co (NASDAQ:NDLS)?

At the end of the second quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from the first quarter of 2020. On the other hand, there were a total of 12 hedge funds with a bullish position in NDLS a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Is NDLS A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Woodson Capital Management, managed by James Woodson Davis, holds the most valuable position in Noodles & Co (NASDAQ:NDLS). Woodson Capital Management has a $23.1 million position in the stock, comprising 1.8% of its 13F portfolio. The second most bullish fund manager is Isomer Partners, managed by Mendel Hui, which holds a $10.3 million position; the fund has 2.7% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism comprise Dennis Goldstein’s Rip Road Capital, Chuck Royce’s Royce & Associates and John D. Gillespie’s Prospector Partners. In terms of the portfolio weights assigned to each position Rip Road Capital allocated the biggest weight to Noodles & Co (NASDAQ:NDLS), around 4.04% of its 13F portfolio. Plaisance Capital is also relatively very bullish on the stock, setting aside 3.7 percent of its 13F equity portfolio to NDLS.

As aggregate interest increased, specific money managers were leading the bulls’ herd. Plaisance Capital, managed by Dan Kozlowski, assembled the biggest position in Noodles & Co (NASDAQ:NDLS). Plaisance Capital had $3.5 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also initiated a $0.2 million position during the quarter. The following funds were also among the new NDLS investors: Cliff Asness’s AQR Capital Management, Greg Eisner’s Engineers Gate Manager, and Philippe Laffont’s Coatue Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Noodles & Co (NASDAQ:NDLS) but similarly valued. These stocks are Hebron Technology Co., Ltd. (NASDAQ:HEBT), Kaleido BioSciences, Inc. (NASDAQ:KLDO), Marinus Pharmaceuticals Inc (NASDAQ:MRNS), Macatawa Bank Corporation (NASDAQ:MCBC), U.S. Silica Holdings Inc (NYSE:SLCA), Vista Oil & Gas, S.A.B. de C.V. (NYSE:VIST), and Metropolitan Bank Holding Corp. (NYSE:MCB). All of these stocks’ market caps resemble NDLS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HEBT 1 3028 0
KLDO 7 7416 4
MRNS 18 106779 6
MCBC 9 19934 -1
SLCA 16 67619 4
VIST 5 42078 -2
MCB 7 46554 0
Average 9 41915 1.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $60 million in NDLS’s case. Marinus Pharmaceuticals Inc (NASDAQ:MRNS) is the most popular stock in this table. On the other hand Hebron Technology Co., Ltd. (NASDAQ:HEBT) is the least popular one with only 1 bullish hedge fund positions. Noodles & Co (NASDAQ:NDLS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NDLS is 86. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 24.8% in 2020 through the end of third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on NDLS as the stock returned 13.6% during Q3 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.