Was The Smart Money Right About Groupon Inc (GRPN)?

Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. Keeping this in mind, let’s take a look at whether Groupon Inc (NASDAQ:GRPN) is a good investment right now.

Groupon Inc (NASDAQ:GRPN) shareholders have witnessed an increase in activity from the world’s largest hedge funds in recent months. GRPN was in 26 hedge funds’ portfolios at the end of December. There were 22 hedge funds in our database with GRPN positions at the end of the previous quarter. Our calculations also showed that GRPN 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).

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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Reeder PAR Capital Management

Paul Reeder of PAR Capital Management

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the “next Amazon” in this video; again we are listening. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the key hedge fund action regarding Groupon Inc (NASDAQ:GRPN).

What does smart money think about Groupon Inc (NASDAQ:GRPN)?

Heading into the first quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the previous quarter. On the other hand, there were a total of 24 hedge funds with a bullish position in GRPN a year ago. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

The largest stake in Groupon Inc (NASDAQ:GRPN) was held by PAR Capital Management, which reported holding $134.7 million worth of stock at the end of September. It was followed by MIG Capital with a $67.6 million position. Other investors bullish on the company included P2 Capital Partners, Ulysses Management, and D E Shaw. In terms of the portfolio weights assigned to each position MIG Capital allocated the biggest weight to Groupon Inc (NASDAQ:GRPN), around 7.41% of its 13F portfolio. P2 Capital Partners is also relatively very bullish on the stock, dishing out 3.26 percent of its 13F equity portfolio to GRPN.

Now, specific money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the biggest position in Groupon Inc (NASDAQ:GRPN). Arrowstreet Capital had $8.1 million invested in the company at the end of the quarter. Michael Zimmerman’s Prentice Capital Management also made a $4.1 million investment in the stock during the quarter. The following funds were also among the new GRPN investors: Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Joseph Samuels’s Islet Management, and Israel Englander’s Millennium Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Groupon Inc (NASDAQ:GRPN) but similarly valued. We will take a look at State Auto Financial Corporation (NASDAQ:STFC), Sandy Spring Bancorp Inc. (NASDAQ:SASR), Virtusa Corporation (NASDAQ:VRTU), and SecureWorks Corp. (NASDAQ:SCWX). All of these stocks’ market caps match GRPN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STFC 5 8229 -3
SASR 15 73192 -2
VRTU 14 56490 0
SCWX 14 26440 5
Average 12 41088 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $322 million in GRPN’s case. Sandy Spring Bancorp Inc. (NASDAQ:SASR) is the most popular stock in this table. On the other hand State Auto Financial Corporation (NASDAQ:STFC) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Groupon Inc (NASDAQ:GRPN) 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 gained 1.0% in 2020 through May 1st and still beat the market by 12.9 percentage points. Unfortunately GRPN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on GRPN were disappointed as the stock returned -49.8% during the four months of 2020 (through May 1st) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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.