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Were Hedge Funds Right About Planet Fitness Inc (PLNT)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Planet Fitness Inc (NYSE:PLNT)? The smart money sentiment can provide an answer to this question.

Is Planet Fitness Inc (NYSE:PLNT) a healthy stock for your portfolio? The best stock pickers are in a pessimistic mood. The number of long hedge fund bets were trimmed by 5 in recent months. Our calculations also showed that PLNT isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

We’re going to view the fresh hedge fund action regarding Planet Fitness Inc (NYSE:PLNT).

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

Heading into the second quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the previous quarter. On the other hand, there were a total of 25 hedge funds with a bullish position in PLNT a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

PLNT_jun2019

Among these funds, Two Sigma Advisors held the most valuable stake in Planet Fitness Inc (NYSE:PLNT), which was worth $73.1 million at the end of the first quarter. On the second spot was Renaissance Technologies which amassed $55.5 million worth of shares. Moreover, Waratah Capital Advisors, Pelham Capital, and Daruma Asset Management were also bullish on Planet Fitness Inc (NYSE:PLNT), allocating a large percentage of their portfolios to this stock.

Seeing as Planet Fitness Inc (NYSE:PLNT) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there exists a select few hedge funds that elected to cut their positions entirely by the end of the third quarter. At the top of the heap, Gabriel Plotkin’s Melvin Capital Management dropped the largest investment of the 700 funds followed by Insider Monkey, totaling close to $28.2 million in stock, and Alexander Mitchell’s Scopus Asset Management was right behind this move, as the fund dumped about $23.5 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 5 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Planet Fitness Inc (NYSE:PLNT) but similarly valued. These stocks are Donaldson Company, Inc. (NYSE:DCI), Kirkland Lake Gold Ltd. (NYSE:KL), ServiceMaster Global Holdings Inc (NYSE:SERV), and Tilray, Inc. (NASDAQ:TLRY). This group of stocks’ market caps are closest to PLNT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DCI 16 121565 -3
KL 25 323351 2
SERV 24 522396 -3
TLRY 10 22079 2
Average 18.75 247348 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $247 million. That figure was $499 million in PLNT’s case. Kirkland Lake Gold Ltd. (NYSE:KL) is the most popular stock in this table. On the other hand Tilray, Inc. (NASDAQ:TLRY) is the least popular one with only 10 bullish hedge fund positions. Planet Fitness Inc (NYSE:PLNT) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on PLNT as the stock returned 16.9% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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