Should You Buy Essential Properties Realty Trust, Inc. (EPRT)?

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 more than 750 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of September 30th, 2019. What do these smart investors think about Essential Properties Realty Trust, Inc. (NYSE:EPRT)?

Hedge fund interest in Essential Properties Realty Trust, Inc. (NYSE:EPRT) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare EPRT to other stocks including Northwest Bancshares, Inc. (NASDAQ:NWBI), ForeScout Technologies, Inc. (NASDAQ:FSCT), and Cavco Industries, Inc. (NASDAQ:CVCO) to get a better sense of its popularity.
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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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Clint Carlson of Carlson 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. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to review the key hedge fund action regarding Essential Properties Realty Trust, Inc. (NYSE:EPRT).

How are hedge funds trading Essential Properties Realty Trust, Inc. (NYSE:EPRT)?

At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards EPRT over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

The largest stake in Essential Properties Realty Trust, Inc. (NYSE:EPRT) was held by Citadel Investment Group, which reported holding $42.7 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $22.1 million position. Other investors bullish on the company included D E Shaw, Carlson Capital, and Alyeska Investment Group. In terms of the portfolio weights assigned to each position Dorset Management allocated the biggest weight to Essential Properties Realty Trust, Inc. (NYSE:EPRT), around 0.77% of its 13F portfolio. Carlson Capital is also relatively very bullish on the stock, dishing out 0.22 percent of its 13F equity portfolio to EPRT.

Because Essential Properties Realty Trust, Inc. (NYSE:EPRT) has experienced falling interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few hedge funds that slashed their positions entirely in the third quarter. It’s worth mentioning that Israel Englander’s Millennium Management dropped the biggest position of the “upper crust” of funds watched by Insider Monkey, worth about $40.9 million in call options, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund sold off about $3 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to Essential Properties Realty Trust, Inc. (NYSE:EPRT). These stocks are Northwest Bancshares, Inc. (NASDAQ:NWBI), ForeScout Technologies, Inc. (NASDAQ:FSCT), Cavco Industries, Inc. (NASDAQ:CVCO), and Frontline Ltd (NYSE:FRO). This group of stocks’ market caps resemble EPRT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NWBI 18 67833 5
FSCT 19 281431 1
CVCO 19 171104 3
FRO 14 99604 1
Average 17.5 154993 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $155 million. That figure was $110 million in EPRT’s case. ForeScout Technologies, Inc. (NASDAQ:FSCT) is the most popular stock in this table. On the other hand Frontline Ltd (NYSE:FRO) is the least popular one with only 14 bullish hedge fund positions. Essential Properties Realty Trust, Inc. (NYSE:EPRT) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on EPRT as the stock returned 13.9% during the first two months of Q4 and outperformed the market by an even larger margin.

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