As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Kura Sushi USA, Inc. (NASDAQ:KRUS).
Is KRUS a good stock to buy? Investors who are in the know were taking a bearish view. The number of long hedge fund bets went down by 1 in recent months. Kura Sushi USA, Inc. (NASDAQ:KRUS) was in 5 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 8. Our calculations also showed that KRUS isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 S&P 500 ETFs by 115 percentage points since March 2017 (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.
Gavin Saitowitz of Prelude Capital
Gavin Saitowitz of Prelude Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $23 biotech stock and is trying to buy the rest for around $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let's take a look at the new hedge fund action surrounding Kura Sushi USA, Inc. (NASDAQ:KRUS).
Do Hedge Funds Think KRUS Is A Good Stock To Buy Now?
At Q1's end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. On the other hand, there were a total of 5 hedge funds with a bullish position in KRUS a year ago. With the smart money's sentiment swirling, there exists a select group of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Among these funds, Cannell Capital held the most valuable stake in Kura Sushi USA, Inc. (NASDAQ:KRUS), which was worth $7.7 million at the end of the fourth quarter. On the second spot was Pacifica Capital Investments which amassed $6 million worth of shares. Portolan Capital Management, Roubaix Capital, and Prelude Capital (previously Springbok Capital) 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 Pacifica Capital Investments allocated the biggest weight to Kura Sushi USA, Inc. (NASDAQ:KRUS), around 2.1% of its 13F portfolio. Roubaix Capital is also relatively very bullish on the stock, earmarking 1.9 percent of its 13F equity portfolio to KRUS.
Judging by the fact that Kura Sushi USA, Inc. (NASDAQ:KRUS) has experienced bearish sentiment from hedge fund managers, logic holds that there was a specific group of funds who were dropping their entire stakes by the end of the first quarter. At the top of the heap, Chuck Royce's Royce & Associates dropped the biggest position of all the hedgies tracked by Insider Monkey, valued at close to $3.6 million in stock, and Steve Pei's Gratia Capital was right behind this move, as the fund dropped about $1.9 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 1 funds by the end of the first quarter.
Let's also examine hedge fund activity in other stocks similar to Kura Sushi USA, Inc. (NASDAQ:KRUS). We will take a look at Capital Bancorp, Inc. (NASDAQ:CBNK), CNFinance Holdings Limited (NYSE:CNF), Ovid Therapeutics Inc. (NASDAQ:OVID), Protective Insurance Corporation (NASDAQ:PTVCB), NGL Energy Partners LP (NYSE:NGL), Northrim BanCorp, Inc. (NASDAQ:NRIM), and Checkmate Pharmaceuticals, Inc. (NASDAQ:CMPI). All of these stocks' market caps match KRUS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CBNK,3,6770,1 CNF,2,148,2 OVID,14,72077,-2 PTVCB,11,27196,6 NGL,5,4968,3 NRIM,7,11997,-3 CMPI,2,22994,-1 Average,6.3,20879,0.9 [/table]
As you can see these stocks had an average of 6.3 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $23 million in KRUS's case. Ovid Therapeutics Inc. (NASDAQ:OVID) is the most popular stock in this table. On the other hand CNFinance Holdings Limited (NYSE:CNF) is the least popular one with only 2 bullish hedge fund positions. Kura Sushi USA, Inc. (NASDAQ:KRUS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for KRUS is 35.3. 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 17.4% in 2021 through June 18th and beat the market by 6.1 percentage points. A small number of hedge funds were also right about betting on KRUS, though not to the same extent, as the stock returned 8.2% since the end of Q1 (through June 18th) and outperformed the market.
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Disclosure: None. This article was originally published at Insider Monkey.
