Is SMPL A Good Stock To Buy Now According To Hedge Funds?

We at Insider Monkey have gone over 817 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. In this article, we look at what those funds think of The Simply Good Foods Company (NASDAQ:SMPL) based on that data.

IS SMPL a good stock to buy now? The Simply Good Foods Company (NASDAQ:SMPL) investors should be aware of a decrease in enthusiasm from smart money in recent months. The Simply Good Foods Company (NASDAQ:SMPL) was in 21 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 34. Our calculations also showed that SMPL isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

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 66 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Mark Kingdon - Kingdon Capital

Mark Kingdon of Kingdon Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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. Keeping this in mind we’re going to take a glance at the recent hedge fund action encompassing The Simply Good Foods Company (NASDAQ:SMPL).

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

At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in SMPL a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Scopus Asset Management was the largest shareholder of The Simply Good Foods Company (NASDAQ:SMPL), with a stake worth $40.2 million reported as of the end of September. Trailing Scopus Asset Management was Citadel Investment Group, which amassed a stake valued at $37.1 million. Kingdon Capital, Millennium Management, and Hudson Way 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 Hudson Way Capital Management allocated the biggest weight to The Simply Good Foods Company (NASDAQ:SMPL), around 2.84% of its 13F portfolio. Kingdon Capital is also relatively very bullish on the stock, setting aside 1.08 percent of its 13F equity portfolio to SMPL.

Because The Simply Good Foods Company (NASDAQ:SMPL) has experienced a decline in interest from hedge fund managers, logic holds that there were a few funds that slashed their full holdings in the third quarter. It’s worth mentioning that James Dinan’s York Capital Management said goodbye to the largest investment of all the hedgies watched by Insider Monkey, valued at an estimated $43.2 million in stock. Glenn W. Welling’s fund, Engaged Capital, also dropped its stock, about $8.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 5 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to The Simply Good Foods Company (NASDAQ:SMPL). These stocks are Outfront Media Inc (NYSE:OUT), Renewable Energy Group Inc (NASDAQ:REGI), Taro Pharmaceutical Industries Ltd. (NYSE:TARO), ESCO Technologies Inc. (NYSE:ESE), Upwork Inc. (NASDAQ:UPWK), First Majestic Silver Corp (NYSE:AG), and Kennedy-Wilson Holdings Inc (NYSE:KW). This group of stocks’ market valuations resemble SMPL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OUT 36 571888 -2
REGI 30 139635 9
TARO 9 59707 -1
ESE 14 74701 7
UPWK 27 294152 2
AG 14 52631 0
KW 18 346851 4
Average 21.1 219938 2.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.1 hedge funds with bullish positions and the average amount invested in these stocks was $220 million. That figure was $151 million in SMPL’s case. Outfront Media Inc (NYSE:OUT) is the most popular stock in this table. On the other hand Taro Pharmaceutical Industries Ltd. (NYSE:TARO) is the least popular one with only 9 bullish hedge fund positions. The Simply Good Foods Company (NASDAQ:SMPL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SMPL is 40.8. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on SMPL as the stock returned 17.1% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.

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