Were Hedge Funds Right About Peloton Interactive, Inc. (PTON)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Peloton Interactive, Inc. (NASDAQ:PTON) and determine whether hedge funds had an edge regarding this stock.

Peloton Interactive, Inc. (NASDAQ:PTON) was in 62 hedge funds’ portfolios at the end of September. The all time high for this statistic is 67. PTON has experienced a decrease in support from the world’s most elite money managers recently. There were 67 hedge funds in our database with PTON holdings at the end of June. Our calculations also showed that PTON isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV 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. Keeping this in mind we’re going to take a look at the new hedge fund action regarding Peloton Interactive, Inc. (NASDAQ:PTON).

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

At the end of the third quarter, a total of 62 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PTON over the last 25 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Among these funds, Tiger Global Management LLC held the most valuable stake in Peloton Interactive, Inc. (NASDAQ:PTON), which was worth $626.5 million at the end of the third quarter. On the second spot was D1 Capital Partners which amassed $599.1 million worth of shares. Viking Global, Altimeter Capital Management, and Coatue Management 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 Anatole Investment Management allocated the biggest weight to Peloton Interactive, Inc. (NASDAQ:PTON), around 17.04% of its 13F portfolio. Woodson Capital Management is also relatively very bullish on the stock, setting aside 11.62 percent of its 13F equity portfolio to PTON.

Since Peloton Interactive, Inc. (NASDAQ:PTON) has faced a decline in interest from the smart money, we can see that there exists a select few money managers that elected to cut their positions entirely last quarter. Interestingly, Eashwar Krishnan’s Tybourne Capital Management dropped the largest position of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $293 million in stock. Renaissance Technologies, also sold off its stock, about $139.4 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 5 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Peloton Interactive, Inc. (NASDAQ:PTON). We will take a look at Best Buy Co., Inc. (NYSE:BBY), Interactive Brokers Group, Inc. (NASDAQ:IBKR), Energy Transfer L.P. (NYSE:ET), ONEOK, Inc. (NYSE:OKE), Generac Holdings Inc. (NYSE:GNRC), Consolidated Edison, Inc. (NYSE:ED), and Albemarle Corporation (NYSE:ALB). This group of stocks’ market valuations are similar to PTON’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.7 hedge funds with bullish positions and the average amount invested in these stocks was $631 million. That figure was $4634 million in PTON’s case. Generac Holdings Inc. (NYSE:GNRC) is the most popular stock in this table. On the other hand ONEOK, Inc. (NYSE:OKE) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Peloton Interactive, Inc. (NASDAQ:PTON) is more popular among hedge funds. Our overall hedge fund sentiment score for PTON is 77.8. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still beat the market by 3.6 percentage points. Unfortunately, PTON wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on PTON were disappointed as the stock returned -68.6% since the end of the third quarter (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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

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