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Is Floor & Decor Holdings, Inc. (FND) Going to Burn These Hedge Funds?

Billionaire hedge fund managers such as Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

Floor & Decor Holdings, Inc. (NYSE:FND) investors should pay attention to an increase in hedge fund interest of late. FND was in 25 hedge funds’ portfolios at the end of September. There were 14 hedge funds in our database with FND positions at the end of the previous quarter. Our calculations also showed that FND isn’t among the 30 most popular stocks among hedge funds.

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 market by 18 percentage points since May 2014 through December 3, 2018 (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.

Jeffrey Talpins Element Capital

Let’s take a glance at the latest hedge fund action surrounding Floor & Decor Holdings, Inc. (NYSE:FND).

How are hedge funds trading Floor & Decor Holdings, Inc. (NYSE:FND)?

At the end of the third quarter, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 79% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in FND heading into this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

FND_dec2018

The largest stake in Floor & Decor Holdings, Inc. (NYSE:FND) was held by Joho Capital, which reported holding $89.1 million worth of stock at the end of September. It was followed by Marshall Wace LLP with a $58 million position. Other investors bullish on the company included Element Capital Management, Laurion Capital Management, and Buckingham Capital Management.

As one would reasonably expect, key hedge funds have jumped into Floor & Decor Holdings, Inc. (NYSE:FND) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the most valuable position in Floor & Decor Holdings, Inc. (NYSE:FND). Marshall Wace LLP had $58 million invested in the company at the end of the quarter. Jeffrey Talpins’s Element Capital Management also made a $30 million investment in the stock during the quarter. The other funds with brand new FND positions are Benjamin A. Smith’s Laurion Capital Management, Jim Simons’s Renaissance Technologies, and Steven Boyd’s Armistice Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Floor & Decor Holdings, Inc. (NYSE:FND) but similarly valued. We will take a look at Fulton Financial Corp (NASDAQ:FULT), Vishay Intertechnology, Inc. (NYSE:VSH), Welbilt, Inc. (NYSE:WBT), and FirstService Corporation (NASDAQ:FSV). This group of stocks’ market valuations are similar to FND’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FULT 12 40945 4
VSH 22 459952 3
WBT 22 813347 2
FSV 13 143738 4
Average 17.25 364496 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $364 million. That figure was $279 million in FND’s case. Vishay Intertechnology, Inc. (NYSE:VSH) is the most popular stock in this table. On the other hand Fulton Financial Corp (NASDAQ:FULT) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Floor & Decor Holdings, Inc. (NYSE:FND) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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

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