Zillow Group (Z) Has Risen 237% in Last One Year, Outperforms Market

If you are looking for the best ideas for your portfolio you may want to consider some of VGI Partners top stock picks. VGI Partners, an investment management firm, is bearish on Zillow Group Inc (NASDAQ:Z) stock. In its FY 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Zillow Group Inc (NASDAQ:Z) stock. Zillow Group Inc (NASDAQ:Z) is an online real estate database company.

On July 30, 2019, VGI Partners had released its FY 2019 investor letter. Zillow Group Inc (NASDAQ:Z) stock has posted a return of 237.1% in the trailing one year period, outperforming the S&P 500 Index which returned 12.5% in the same period. This suggests that the investment firm was wrong in its decision. On a year-to-date basis, Zillow Group Inc (NASDAQ:Z) stock has risen by 119.8%.

In its FY 2019 investor letter, the firm reported that VGI Partners Global Investments Limited generated a 10.2% net return. Let’s take a look at comments made by VGI Partners about Zillow Group Inc (NASDAQ:Z) stock in the Q2 2019 investor letter.

“Zillow Group (NASDAQ: Z) detracted -1.6% from performance for the twelve months to 30 June 2019, with the share price decreasing -21.5% over the course of the year. Zillow operates the leading residential real estate marketplace websites in the US. We were originally attracted to this business as we saw a shift of real estate advertising dollars towards online platforms and, as the dominant player, Zillow was positioned to be the main beneficiary of this trend.

We were attracted to the core advertising business as it is highly profitable, has limited competition and requires very little capital investment. However, in early 2018 Zillow announced they would move into buying and selling homes directly. We were immediately sceptical regarding this new business of buying and selling homes as it is highly competitive, operates with razor-thin margins and requires significant capital investment to grow (as the cost of each house is significant).

While it was initially unclear whether the home-flipping business would be a small-scale experiment or a more substantial shift in corporate strategy, we started to reduce our exposure to Zillow shortly after the move into home-flipping was announced.

It is now apparent that Management is committed to significantly accelerating the buying and selling of homes across the US. Zillow will use financial leverage to grow this business which gives rise to a new potential risk to the balance sheet in the event of a housing downturn. As a result of this significant change in business model, we have exited our Zillow investment.”

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In Q2 2020, the number of bullish hedge fund positions on Zillow Group Inc (NASDAQ:Z) stock increased by about 59% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with Zillow’s downside potential. Our calculations showed that Zillow Group Inc (NASDAQ:Z) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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