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Were Hedge Funds Right About Wingstop Inc (WING)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Wingstop Inc (NASDAQ:WING) and determine whether hedge funds skillfully traded this stock.

Is Wingstop Inc (NASDAQ:WING) a bargain? Hedge funds were buying. The number of bullish hedge fund bets moved up by 3 lately. Our calculations also showed that WING isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). WING was in 27 hedge funds’ portfolios at the end of March. There were 24 hedge funds in our database with WING positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

RENAISSANCE TECHNOLOGIES

Jim Simons Founder of Renaissance Technologies

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now let’s analyze the key hedge fund action regarding Wingstop Inc (NASDAQ:WING).

How are hedge funds trading Wingstop Inc (NASDAQ:WING)?

Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the fourth quarter of 2019. On the other hand, there were a total of 24 hedge funds with a bullish position in WING a year ago. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

The largest stake in Wingstop Inc (NASDAQ:WING) was held by Renaissance Technologies, which reported holding $89 million worth of stock at the end of September. It was followed by Half Sky Capital with a $61 million position. Other investors bullish on the company included Tremblant Capital, GLG Partners, and Maverick Capital. In terms of the portfolio weights assigned to each position Half Sky Capital allocated the biggest weight to Wingstop Inc (NASDAQ:WING), around 24.02% of its 13F portfolio. MIK Capital is also relatively very bullish on the stock, earmarking 3.54 percent of its 13F equity portfolio to WING.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Tremblant Capital, managed by Brett Barakett, established the biggest position in Wingstop Inc (NASDAQ:WING). Tremblant Capital had $14.1 million invested in the company at the end of the quarter. Kamyar Khajavi’s MIK Capital also made a $9.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Christopher Weldon’s Stamina Capital Management, John Osterweis’s Osterweis Capital Management, and Greg Eisner’s Engineers Gate Manager.

Let’s also examine hedge fund activity in other stocks similar to Wingstop Inc (NASDAQ:WING). We will take a look at Shell Midstream Partners LP (NYSE:SHLX), Thor Industries, Inc. (NYSE:THO), Arco Platform Limited (NASDAQ:ARCE), and Premier Inc (NASDAQ:PINC). This group of stocks’ market caps are similar to WING’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SHLX 4 12962 -4
THO 20 80400 -10
ARCE 16 144545 -1
PINC 17 190749 3
Average 14.25 107164 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $107 million. That figure was $264 million in WING’s case. Thor Industries, Inc. (NYSE:THO) is the most popular stock in this table. On the other hand Shell Midstream Partners LP (NYSE:SHLX) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Wingstop Inc (NASDAQ:WING) 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on WING as the stock returned 74.5% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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