Is Purple Innovation, Inc. (PRPL) Going to Burn These Hedge Funds?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 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 Purple Innovation, Inc. (NASDAQ:PRPL) in this article.

Purple Innovation, Inc. (NASDAQ:PRPL) investors should be aware of a decrease in hedge fund sentiment recently. Purple Innovation, Inc. (NASDAQ:PRPL) was in 24 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 36. There were 33 hedge funds in our database with PRPL holdings at the end of December. Our calculations also showed that PRPL isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

David Brown Hawk Ridge Partners

David Brown of Hawk Ridge Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s analyze the latest hedge fund action surrounding Purple Innovation, Inc. (NASDAQ:PRPL).

Do Hedge Funds Think PRPL Is A Good Stock To Buy Now?

At Q1’s end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -27% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PRPL over the last 23 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Coliseum Capital held the most valuable stake in Purple Innovation, Inc. (NASDAQ:PRPL), which was worth $492 million at the end of the fourth quarter. On the second spot was Hawk Ridge Management which amassed $55.2 million worth of shares. Light Street Capital, Bloom Tree Partners, and Woodson Capital 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 Coliseum Capital allocated the biggest weight to Purple Innovation, Inc. (NASDAQ:PRPL), around 36.85% of its 13F portfolio. Bayberry Capital Partners is also relatively very bullish on the stock, earmarking 7.48 percent of its 13F equity portfolio to PRPL.

Because Purple Innovation, Inc. (NASDAQ:PRPL) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few fund managers that slashed their positions entirely heading into Q2. Intriguingly, David Fiszel’s Honeycomb Asset Management said goodbye to the largest stake of all the hedgies tracked by Insider Monkey, totaling about $48.4 million in stock, and Alexander Mitchell’s Scopus Asset Management was right behind this move, as the fund sold off about $23.1 million worth. These moves are important to note, as aggregate hedge fund interest fell by 9 funds heading into Q2.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Purple Innovation, Inc. (NASDAQ:PRPL) but similarly valued. We will take a look at Criteo SA (NASDAQ:CRTO), Park National Corporation (NYSE:PRK), FB Financial Corporation (NYSE:FBK), Allscripts Healthcare Solutions Inc (NASDAQ:MDRX), MediaAlpha, Inc. (NYSE:MAX), EnLink Midstream LLC (NYSE:ENLC), and Avanos Medical, Inc. (NYSE:AVNS). This group of stocks’ market valuations are similar to PRPL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CRTO 16 126253 3
PRK 5 4953 1
FBK 10 82989 1
MDRX 24 282702 2
MAX 15 33320 7
ENLC 11 42185 3
AVNS 13 232180 -1
Average 13.4 114940 2.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.4 hedge funds with bullish positions and the average amount invested in these stocks was $115 million. That figure was $762 million in PRPL’s case. Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) is the most popular stock in this table. On the other hand Park National Corporation (NYSE:PRK) is the least popular one with only 5 bullish hedge fund positions. Purple Innovation, Inc. (NASDAQ:PRPL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PRPL is 66. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately PRPL wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on PRPL were disappointed as the stock returned -21.5% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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