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These Hedge Funds Dumped Planet Fitness Inc (PLNT) At The Right Time

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. In this article we are going to take a look at smart money sentiment towards Planet Fitness Inc (NYSE:PLNT).

Planet Fitness Inc (NYSE:PLNT) investors should be aware of a decrease in hedge fund interest of late. PLNT was in 34 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 37 hedge funds in our database with PLNT positions at the end of the previous quarter. Our calculations also showed that PLNT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 41 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.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a gander at the fresh hedge fund action regarding Planet Fitness Inc (NYSE:PLNT).

Hedge fund activity in Planet Fitness Inc (NYSE:PLNT)

At Q4’s end, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the third quarter of 2019. On the other hand, there were a total of 30 hedge funds with a bullish position in PLNT a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Is PLNT A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Pelham Capital, managed by Ross Turner, holds the biggest position in Planet Fitness Inc (NYSE:PLNT). Pelham Capital has a $166.2 million position in the stock, comprising 18.4% of its 13F portfolio. On Pelham Capital’s heels is John Smith Clark of Southpoint Capital Advisors, with a $112 million position; 4% of its 13F portfolio is allocated to the company. Other peers that are bullish contain Robert Pitts’s Steadfast Capital Management, John Overdeck and David Siegel’s Two Sigma Advisors and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Pelham Capital allocated the biggest weight to Planet Fitness Inc (NYSE:PLNT), around 18.39% of its 13F portfolio. Emerson Point Capital is also relatively very bullish on the stock, designating 7.76 percent of its 13F equity portfolio to PLNT.

Seeing as Planet Fitness Inc (NYSE:PLNT) has experienced bearish sentiment from hedge fund managers, logic holds that there was a specific group of funds that elected to cut their positions entirely by the end of the third quarter. Interestingly, Renaissance Technologies cut the largest position of all the hedgies monitored by Insider Monkey, worth close to $33.3 million in stock. Louis Bacon’s fund, Moore Global Investments, also cut its stock, about $14.5 million worth. These transactions are interesting, as total hedge fund interest was cut by 3 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks similar to Planet Fitness Inc (NYSE:PLNT). These stocks are Old Republic International Corporation (NYSE:ORI), The Medicines Company (NASDAQ:MDCO), HubSpot Inc (NYSE:HUBS), and Horizon Pharma Public Limited Company (NASDAQ:HZNP). This group of stocks’ market caps match PLNT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ORI 20 344967 3
MDCO 60 2420538 26
HUBS 30 651657 -6
HZNP 33 1859526 0
Average 35.75 1319172 5.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.75 hedge funds with bullish positions and the average amount invested in these stocks was $1319 million. That figure was $838 million in PLNT’s case. The Medicines Company (NASDAQ:MDCO) is the most popular stock in this table. On the other hand Old Republic International Corporation (NYSE:ORI) is the least popular one with only 20 bullish hedge fund positions. Planet Fitness Inc (NYSE:PLNT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately PLNT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PLNT investors were disappointed as the stock returned -48% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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