Is Carrols Restaurant Group, Inc. (TAST) Going to Burn These Hedge Funds?

Is Carrols Restaurant Group, Inc. (NASDAQ:TAST) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Carrols Restaurant Group, Inc. (NASDAQ:TAST) a healthy stock for your portfolio? The smart money is in a pessimistic mood. The number of bullish hedge fund positions were cut by 4 recently. Our calculations also showed that TAST isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). TAST was in 16 hedge funds’ portfolios at the end of the third quarter of 2019. There were 20 hedge funds in our database with TAST positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. 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

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to go over the latest hedge fund action surrounding Carrols Restaurant Group, Inc. (NASDAQ:TAST).

How are hedge funds trading Carrols Restaurant Group, Inc. (NASDAQ:TAST)?

At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the second quarter of 2019. By comparison, 20 hedge funds held shares or bullish call options in TAST a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is TAST A Good Stock To Buy?

More specifically, Private Capital Management was the largest shareholder of Carrols Restaurant Group, Inc. (NASDAQ:TAST), with a stake worth $23.3 million reported as of the end of September. Trailing Private Capital Management was Cannell Capital, which amassed a stake valued at $21.8 million. Royce & Associates, Cove Street Capital, and Berylson Capital Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Berylson Capital Partners allocated the biggest weight to Carrols Restaurant Group, Inc. (NASDAQ:TAST), around 9.39% of its 13F portfolio. Cannell Capital is also relatively very bullish on the stock, earmarking 7.07 percent of its 13F equity portfolio to TAST.

Judging by the fact that Carrols Restaurant Group, Inc. (NASDAQ:TAST) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there were a few hedgies that elected to cut their full holdings last quarter. Intriguingly, George McCabe’s Portolan Capital Management said goodbye to the biggest investment of the “upper crust” of funds tracked by Insider Monkey, comprising about $9.7 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace was right behind this move, as the fund said goodbye to about $2.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 4 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Carrols Restaurant Group, Inc. (NASDAQ:TAST). We will take a look at Spartan Stores, Inc. (NASDAQ:SPTN), XBiotech Inc. (NASDAQ:XBIT), Verso Corporation (NYSE:VRS), and U.S. Lime & Minerals Inc. (NASDAQ:USLM). All of these stocks’ market caps are closest to TAST’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SPTN 18 39897 -2
XBIT 6 7161 -1
VRS 22 117951 0
USLM 3 29576 -1
Average 12.25 48646 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $85 million in TAST’s case. Verso Corporation (NYSE:VRS) is the most popular stock in this table. On the other hand U.S. Lime & Minerals Inc. (NASDAQ:USLM) is the least popular one with only 3 bullish hedge fund positions. Carrols Restaurant Group, Inc. (NASDAQ:TAST) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TAST wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TAST were disappointed as the stock returned -4.5% during the fourth quarter (through the end of November) 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 this year.

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