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Should You Avoid e.l.f. Beauty, Inc. (ELF)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards e.l.f. Beauty, Inc. (NYSE:ELF).

e.l.f. Beauty, Inc. (NYSE:ELF) shareholders have witnessed a decrease in support from the world’s most elite money managers of late. ELF was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. There were 24 hedge funds in our database with ELF holdings at the end of the previous quarter. Our calculations also showed that ELF 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.

According to most stock holders, hedge funds are viewed as underperforming, old financial tools of the past. While there are over 8000 funds in operation at present, Our experts choose to focus on the top tier of this club, about 850 funds. These hedge fund managers watch over most of the hedge fund industry’s total asset base, and by paying attention to their finest picks, Insider Monkey has discovered various investment strategies that have historically outpaced Mr. Market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Richard Driehaus of Driehaus Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. 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. Now we’re going to check out the latest hedge fund action regarding e.l.f. Beauty, Inc. (NYSE:ELF).

How have hedgies been trading e.l.f. Beauty, Inc. (NYSE:ELF)?

Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the fourth quarter of 2019. By comparison, 18 hedge funds held shares or bullish call options in ELF a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

The largest stake in e.l.f. Beauty, Inc. (NYSE:ELF) was held by Lomas Capital Management, which reported holding $33.6 million worth of stock at the end of September. It was followed by Bayberry Capital Partners with a $20.2 million position. Other investors bullish on the company included Marathon Partners, Renaissance Technologies, and Driehaus Capital. In terms of the portfolio weights assigned to each position Marathon Partners allocated the biggest weight to e.l.f. Beauty, Inc. (NYSE:ELF), around 12.26% of its 13F portfolio. Bayberry Capital Partners is also relatively very bullish on the stock, setting aside 8.24 percent of its 13F equity portfolio to ELF.

Seeing as e.l.f. Beauty, Inc. (NYSE:ELF) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there were a few money managers that elected to cut their positions entirely last quarter. Intriguingly, Steve Cohen’s Point72 Asset Management dropped the biggest stake of all the hedgies watched by Insider Monkey, totaling about $13.7 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also cut its stock, about $7.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as e.l.f. Beauty, Inc. (NYSE:ELF) but similarly valued. These stocks are PGT Innovations Inc. (NYSE:PGTI), Globalstar, Inc. (NYSE:GSAT), Criteo SA (NASDAQ:CRTO), and Allegiance Bancshares, Inc. (NASDAQ:ABTX). All of these stocks’ market caps match ELF’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PGTI 14 36577 4
GSAT 12 55702 0
CRTO 13 64427 3
ABTX 6 6471 -1
Average 11.25 40794 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $135 million in ELF’s case. PGT Innovations Inc. (NYSE:PGTI) is the most popular stock in this table. On the other hand Allegiance Bancshares, Inc. (NASDAQ:ABTX) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks e.l.f. Beauty, Inc. (NYSE:ELF) is more popular among hedge funds. 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 returned 12.2% in 2020 through June 17th but still managed to beat the market by 14.8 percentage points. Hedge funds were also right about betting on ELF as the stock returned 81.3% so far in Q2 (through June 17th) 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.