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Is FS Bancorp, Inc. (FSBW) Going to Burn These Hedge Funds?

In this article we will check out the progression of hedge fund sentiment towards FS Bancorp, Inc. (NASDAQ:FSBW) and determine whether it is a good investment 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.

FS Bancorp, Inc. (NASDAQ:FSBW) has seen a decrease in enthusiasm from smart money in recent months. FSBW was in 5 hedge funds’ portfolios at the end of the first quarter of 2020. There were 8 hedge funds in our database with FSBW holdings at the end of the previous quarter. Our calculations also showed that FSBW isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the recent hedge fund action surrounding FS Bancorp, Inc. (NASDAQ:FSBW).

How are hedge funds trading FS Bancorp, Inc. (NASDAQ:FSBW)?

Heading into the second quarter of 2020, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -38% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FSBW over the last 18 quarters. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Is FSBW A Good Stock To Buy?

Among these funds, EJF Capital held the most valuable stake in FS Bancorp, Inc. (NASDAQ:FSBW), which was worth $5.9 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $3.5 million worth of shares. AWH Capital, Millennium Management, and Dorset Management 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 AWH Capital allocated the biggest weight to FS Bancorp, Inc. (NASDAQ:FSBW), around 9.17% of its 13F portfolio. EJF Capital is also relatively very bullish on the stock, earmarking 1.23 percent of its 13F equity portfolio to FSBW.

Because FS Bancorp, Inc. (NASDAQ:FSBW) has experienced bearish sentiment from the smart money, we can see that there lies a certain “tier” of hedge funds that decided to sell off their full holdings last quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the biggest investment of the “upper crust” of funds tracked by Insider Monkey, totaling an estimated $0.6 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also sold off its stock, about $0.3 million worth. These moves are interesting, as total hedge fund interest fell by 3 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as FS Bancorp, Inc. (NASDAQ:FSBW) but similarly valued. We will take a look at Profound Medical Corp. (NASDAQ:PROF), Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL), CONSOL Coal Resources LP (NYSE:CCR), and Atlanticus Holdings Corp (NASDAQ:ATLC). This group of stocks’ market valuations are closest to FSBW’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PROF 8 16670 5
AOSL 11 19992 2
CCR 2 31398 0
ATLC 4 4804 2
Average 6.25 18216 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $11 million in FSBW’s case. Alpha and Omega Semiconductor Ltd (NASDAQ:AOSL) is the most popular stock in this table. On the other hand CONSOL Coal Resources LP (NYSE:CCR) is the least popular one with only 2 bullish hedge fund positions. FS Bancorp, Inc. (NASDAQ:FSBW) 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 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 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately FSBW wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); FSBW investors were disappointed as the stock returned 18% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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