Is Criteo SA (CRTO) A Good Stock To Buy ?

Nina Todic

Sun, Oct 27, 2019, 6:13 PM

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Hedge fund interest in Criteo SA (NASDAQ:CRTO) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare CRTO to other stocks including MGP Ingredients Inc (NASDAQ:MGPI), Radius Health Inc (NASDAQ:RDUS), and Patrick Industries, Inc. (NASDAQ:PATK) to get a better sense of its popularity. Our calculations also showed that CRTO isn't among the 30 most popular stocks among hedge funds (see the video below).

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a glance at the new hedge fund action encompassing Criteo SA (NASDAQ:CRTO).

What does smart money think about Criteo SA (NASDAQ:CRTO)?

At the end of the second quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in CRTO a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Criteo SA (NASDAQ:CRTO) was held by International Value Advisers, which reported holding $67.4 million worth of stock at the end of March. It was followed by Greenvale Capital with a $41.7 million position. Other investors bullish on the company included Citadel Investment Group, Okumus Fund Management, and Marshall Wace LLP.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: HBK Investments. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Okumus Fund Management).

Let's now review hedge fund activity in other stocks similar to Criteo SA (NASDAQ:CRTO). We will take a look at MGP Ingredients Inc (NASDAQ:MGPI), Radius Health Inc (NASDAQ:RDUS), Patrick Industries, Inc. (NASDAQ:PATK), and Wesco Aircraft Holdings Inc (NYSE:WAIR). This group of stocks' market valuations are closest to CRTO's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MGPI,7,24316,-6 RDUS,16,327584,-6 PATK,15,86609,-2 WAIR,21,252203,-1 Average,14.75,172678,-3.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $173 million. That figure was $150 million in CRTO's case. Wesco Aircraft Holdings Inc (NYSE:WAIR) is the most popular stock in this table. On the other hand MGP Ingredients Inc (NASDAQ:MGPI) is the least popular one with only 7 bullish hedge fund positions. Criteo SA (NASDAQ:CRTO) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on CRTO as the stock returned 8.6% during the same time frame and outperformed the market by an even larger margin.

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

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