Here’s What Hedge Funds Think About Texas Roadhouse Inc (TXRH)

“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Texas Roadhouse Inc (NASDAQ:TXRH) and see how it was affected.

Texas Roadhouse Inc (NASDAQ:TXRH) was in 23 hedge funds’ portfolios at the end of June. TXRH investors should pay attention to a decrease in hedge fund interest lately. There were 25 hedge funds in our database with TXRH positions at the end of the previous quarter. Our calculations also showed that TXRH isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

According to most stock holders, hedge funds are perceived as unimportant, outdated financial tools of years past. While there are over 8000 funds in operation at present, We look at the masters of this club, approximately 750 funds. These investment experts command bulk of the hedge fund industry’s total asset base, and by monitoring their highest performing investments, Insider Monkey has discovered numerous investment strategies that have historically outpaced the broader indices. Insider Monkey’s flagship hedge fund strategy outrun the S&P 500 index by around 5 percentage points a year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

Dmitry Balyasny

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. We’re going to take a glance at the recent hedge fund action surrounding Texas Roadhouse Inc (NASDAQ:TXRH).

How are hedge funds trading Texas Roadhouse Inc (NASDAQ:TXRH)?

At the end of the second quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TXRH over the last 16 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with TXRH Positions

The largest stake in Texas Roadhouse Inc (NASDAQ:TXRH) was held by Marshall Wace LLP, which reported holding $63.5 million worth of stock at the end of March. It was followed by Citadel Investment Group with a $34.6 million position. Other investors bullish on the company included Millennium Management, Balyasny Asset Management, and Renaissance Technologies.

Because Texas Roadhouse Inc (NASDAQ:TXRH) has witnessed falling interest from hedge fund managers, logic holds that there were a few hedgies that slashed their entire stakes in the second quarter. It’s worth mentioning that Elise Di Vincenzo Crumbine’s Stormborn Capital Management dumped the largest stake of the “upper crust” of funds followed by Insider Monkey, comprising an estimated $4.4 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund cut about $2 million worth. These transactions are important to note, as total hedge fund interest was cut by 2 funds in the second quarter.

Let’s check out hedge fund activity in other stocks similar to Texas Roadhouse Inc (NASDAQ:TXRH). We will take a look at Eldorado Resorts Inc (NASDAQ:ERI), AutoNation, Inc. (NYSE:AN), F.N.B. Corporation (NYSE:FNB), and Transocean Ltd (NYSE:RIG). All of these stocks’ market caps are closest to TXRH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ERI 37 1022483 6
AN 22 402713 1
FNB 19 85551 -4
RIG 31 494387 -6
Average 27.25 501284 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $501 million. That figure was $257 million in TXRH’s case. Eldorado Resorts Inc (NASDAQ:ERI) is the most popular stock in this table. On the other hand F.N.B. Corporation (NYSE:FNB) is the least popular one with only 19 bullish hedge fund positions. Texas Roadhouse Inc (NASDAQ:TXRH) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TXRH wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TXRH investors were disappointed as the stock returned -1.6% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.

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