Is SFM Stock A Buy or Sell?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Sprouts Farmers Market Inc (NASDAQ:SFM).

Is SFM stock a buy? Money managers were selling. The number of long hedge fund bets were trimmed by 2 in recent months. Sprouts Farmers Market Inc (NASDAQ:SFM) was in 25 hedge funds’ portfolios at the end of December. The all time high for this statistic is 30. Our calculations also showed that SFM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 27 hedge funds in our database with SFM holdings at the end of September.

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 S&P 500 ETFs by 124 percentage points since March 2017 (see the details here).

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 website. With all of this in mind let’s check out the key hedge fund action encompassing Sprouts Farmers Market Inc (NASDAQ:SFM).

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

At the end of December, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SFM over the last 22 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Sprouts Farmers Market Inc (NASDAQ:SFM) was held by Renaissance Technologies, which reported holding $152.8 million worth of stock at the end of December. It was followed by Half Sky Capital with a $56 million position. Other investors bullish on the company included Citadel Investment Group, Arrowstreet Capital, and AQR Capital Management. In terms of the portfolio weights assigned to each position Half Sky Capital allocated the biggest weight to Sprouts Farmers Market Inc (NASDAQ:SFM), around 20.05% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, designating 0.39 percent of its 13F equity portfolio to SFM.

Since Sprouts Farmers Market Inc (NASDAQ:SFM) has experienced falling interest from the aggregate hedge fund industry, we can see that there is a sect of funds who were dropping their entire stakes last quarter. Interestingly, John Overdeck and David Siegel’s Two Sigma Advisors cut the largest investment of the 750 funds followed by Insider Monkey, valued at close to $2.5 million in stock. Crispin Odey’s fund, Odey Asset Management Group, also said goodbye to its stock, about $2.2 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Sprouts Farmers Market Inc (NASDAQ:SFM) but similarly valued. We will take a look at AlloVir, Inc. (NASDAQ:ALVR), International Bancshares Corp (NASDAQ:IBOC), Golub Capital BDC Inc (NASDAQ:GBDC), Afya Limited (NASDAQ:AFYA), Maxar Technologies Inc (NYSE:MAXR), Sinclair Broadcast Group, Inc. (NASDAQ:SBGI), and Simmons First National Corporation (NASDAQ:SFNC). This group of stocks’ market caps resemble SFM’s market cap.

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As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $165 million. That figure was $394 million in SFM’s case. Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) is the most popular stock in this table. On the other hand Simmons First National Corporation (NASDAQ:SFNC) is the least popular one with only 6 bullish hedge fund positions. Sprouts Farmers Market Inc (NASDAQ:SFM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SFM is 69.3. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on SFM as the stock returned 33.6% since the end of Q4 (through 4/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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