Was The Smart Money Right About Five Below Inc (FIVE)?

Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Five Below Inc (NASDAQ:FIVE).

Is Five Below Inc (NASDAQ:FIVE) a buy right now? Prominent investors were in a bearish mood. The number of bullish hedge fund bets retreated by 2 recently. Five Below Inc (NASDAQ:FIVE) was in 42 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 44. Our calculations also showed that FIVE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Aaron Cowen Suvretta Capital

Aaron Cowen of Suvretta Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to take a glance at the key hedge fund action encompassing Five Below Inc (NASDAQ:FIVE).

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

At the end of December, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the previous quarter. By comparison, 42 hedge funds held shares or bullish call options in FIVE a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is FIVE A Good Stock To Buy?

Among these funds, Suvretta Capital Management held the most valuable stake in Five Below Inc (NASDAQ:FIVE), which was worth $181.6 million at the end of the fourth quarter. On the second spot was Citadel Investment Group which amassed $115.7 million worth of shares. Chilton Investment Company, Pacifica Capital Investments, and Interval Partners 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 Pacifica Capital Investments allocated the biggest weight to Five Below Inc (NASDAQ:FIVE), around 23.51% of its 13F portfolio. Crestwood Capital Management is also relatively very bullish on the stock, dishing out 6.31 percent of its 13F equity portfolio to FIVE.

Due to the fact that Five Below Inc (NASDAQ:FIVE) has faced falling interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of fund managers that decided to sell off their positions entirely heading into Q1. Interestingly, Phill Gross and Robert Atchinson’s Adage Capital Management cut the largest investment of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $38.1 million in stock. Robert Pitts’s fund, Steadfast Capital Management, also dropped its stock, about $12.1 million worth. These transactions are interesting, as total hedge fund interest fell by 2 funds heading into Q1.

Let’s go over hedge fund activity in other stocks similar to Five Below Inc (NASDAQ:FIVE). We will take a look at Aramark (NYSE:ARMK), Formula One Group (NASDAQ:FWONK), Camden Property Trust (NYSE:CPT), Lincoln National Corporation (NYSE:LNC), Trex Company, Inc. (NYSE:TREX), Floor & Decor Holdings, Inc. (NYSE:FND), and Teck Resources Ltd (NYSE:TECK). This group of stocks’ market caps are closest to FIVE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ARMK 33 1422317 -7
FWONK 42 1724356 2
CPT 26 510604 1
LNC 36 708675 6
TREX 30 314067 4
FND 31 1027190 -11
TECK 31 798049 4
Average 32.7 929323 -0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.7 hedge funds with bullish positions and the average amount invested in these stocks was $929 million. That figure was $997 million in FIVE’s case. Formula One Group (NASDAQ:FWONK) is the most popular stock in this table. On the other hand Camden Property Trust (NYSE:CPT) is the least popular one with only 26 bullish hedge fund positions. Five Below Inc (NASDAQ:FIVE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FIVE is 81.6. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on FIVE as the stock returned 15% since the end of Q4 (through 4/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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