Is SONO Stock A Buy or Sell?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Sonos, Inc. (NASDAQ:SONO) to find out whether there were any major changes in hedge funds’ views.

Is SONO stock a buy or sell? Sonos, Inc. (NASDAQ:SONO) investors should pay attention to an increase in hedge fund sentiment in recent months. Sonos, Inc. (NASDAQ:SONO) was in 43 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 32 hedge funds in our database with SONO positions at the end of the third quarter. Our calculations also showed that SONO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David Einhorn of Greenlight Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy 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. Keeping this in mind we’re going to analyze the key hedge fund action encompassing Sonos, Inc. (NASDAQ:SONO).

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

At fourth quarter’s end, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a change of 34% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in SONO over the last 22 quarters. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

The largest stake in Sonos, Inc. (NASDAQ:SONO) was held by Citadel Investment Group, which reported holding $90.1 million worth of stock at the end of December. It was followed by Renaissance Technologies with a $81.7 million position. Other investors bullish on the company included Hawk Ridge Management, Trigran Investments, and D E Shaw. In terms of the portfolio weights assigned to each position Trigran Investments allocated the biggest weight to Sonos, Inc. (NASDAQ:SONO), around 7.71% of its 13F portfolio. Hawk Ridge Management is also relatively very bullish on the stock, dishing out 5.63 percent of its 13F equity portfolio to SONO.

As industrywide interest jumped, key money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the largest position in Sonos, Inc. (NASDAQ:SONO). Arrowstreet Capital had $17.7 million invested in the company at the end of the quarter. Principal Global Investors’s Columbus Circle Investors also made a $9.4 million investment in the stock during the quarter. The following funds were also among the new SONO investors: David Einhorn’s Greenlight Capital, Raffi Tokatlian’s Ararat Capital, and Noam Gottesman’s GLG Partners.

Let’s also examine hedge fund activity in other stocks similar to Sonos, Inc. (NASDAQ:SONO). These stocks are Investors Bancorp, Inc. (NASDAQ:ISBC), VEON Ltd. (NASDAQ:VEON), Extended Stay America Inc (NASDAQ:STAY), Revolution Medicines, Inc. (NASDAQ:RVMD), Associated Banc Corp (NYSE:ASB), CommVault Systems, Inc. (NASDAQ:CVLT), and CI Financial Corp (NYSE:CIXX). This group of stocks’ market values are similar to SONO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ISBC 24 211515 -4
VEON 6 15600 -2
STAY 23 386389 0
RVMD 26 498681 11
ASB 22 254328 1
CVLT 23 555959 -1
CIXX 8 79717 8
Average 18.9 286027 1.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.9 hedge funds with bullish positions and the average amount invested in these stocks was $286 million. That figure was $603 million in SONO’s case. Revolution Medicines, Inc. (NASDAQ:RVMD) is the most popular stock in this table. On the other hand VEON Ltd. (NASDAQ:VEON) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Sonos, Inc. (NASDAQ:SONO) is more popular among hedge funds. Our overall hedge fund sentiment score for SONO is 90. 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 returned 5.3% in 2021 through March 19th but still managed to beat the market by 0.8 percentage points. Hedge funds were also right about betting on SONO as the stock returned 77.7% since the end of December (through 3/19) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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