Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Papa John’s International, Inc. (NASDAQ:PZZA) in this article.
Papa John’s International, Inc. (NASDAQ:PZZA) investors should be aware of a decrease in hedge fund interest recently. PZZA was in 22 hedge funds’ portfolios at the end of the first quarter of 2019. There were 23 hedge funds in our database with PZZA positions at the end of the previous quarter. Our calculations also showed that PZZA isn’t among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
We’re going to review the fresh hedge fund action encompassing Papa John’s International, Inc. (NASDAQ:PZZA).
What have hedge funds been doing with Papa John’s International, Inc. (NASDAQ:PZZA)?
At Q1’s end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PZZA over the last 15 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Papa John’s International, Inc. (NASDAQ:PZZA) was held by Bares Capital Management, which reported holding $99.2 million worth of stock at the end of March. It was followed by Legion Partners Asset Management with a $91.4 million position. Other investors bullish on the company included Citadel Investment Group, Arrowstreet Capital, and Renaissance Technologies.
Judging by the fact that Papa John’s International, Inc. (NASDAQ:PZZA) has experienced falling interest from the aggregate hedge fund industry, it’s safe to say that there was a specific group of hedgies who were dropping their positions entirely in the third quarter. It’s worth mentioning that Seth Wunder’s Black-and-White Capital said goodbye to the biggest position of all the hedgies followed by Insider Monkey, comprising about $35.8 million in stock, and Joe Milano’s Greenhouse Funds was right behind this move, as the fund dumped about $4.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 1 funds in the third quarter.
Let’s check out hedge fund activity in other stocks similar to Papa John’s International, Inc. (NASDAQ:PZZA). We will take a look at TTEC Holdings, Inc. (NASDAQ:TTEC), Dril-Quip, Inc. (NYSE:DRQ), Brinker International, Inc. (NYSE:EAT), and WestAmerica Bancorp. (NASDAQ:WABC). All of these stocks’ market caps are similar to PZZA’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $361 million in PZZA’s case. Brinker International, Inc. (NYSE:EAT) is the most popular stock in this table. On the other hand WestAmerica Bancorp. (NASDAQ:WABC) is the least popular one with only 6 bullish hedge fund positions. Papa John’s International, Inc. (NASDAQ:PZZA) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately PZZA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PZZA were disappointed as the stock returned -9.6% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.