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Mister Car Wash Inc. (MCW) Fell Out Of Favor With Hedge Funds

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In this article we are going to use hedge fund sentiment as a tool and determine whether Mister Car Wash Inc. (NYSE:MCW) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Mister Car Wash Inc. (NYSE:MCW) investors should be aware of a decrease in enthusiasm from smart money of late. Mister Car Wash Inc. (NYSE:MCW) was in 24 hedge funds' portfolios at the end of the third quarter of 2021. The all time high for this statistic is 31. Our calculations also showed that MCW isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV 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. Keeping this in mind we're going to take a look at the latest hedge fund action surrounding Mister Car Wash Inc. (NYSE:MCW).

Ricky Sandler's tsop 10 stock picks
Ricky Sandler's tsop 10 stock picks

Ricky Sandler of Eminence Capital

Do Hedge Funds Think MCW Is A Good Stock To Buy Now?

Heading into the fourth quarter of 2021, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in MCW a year ago. With hedge funds' capital changing hands, there exists a select group of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Among these funds, Leonard Green & Partners held the most valuable stake in Mister Car Wash Inc. (NYSE:MCW), which was worth $4000.6 million at the end of the third quarter. On the second spot was Woodson Capital Management which amassed $51.4 million worth of shares. Eminence Capital, Cowbird Capital, and Rip Road 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 Leonard Green & Partners allocated the biggest weight to Mister Car Wash Inc. (NYSE:MCW), around 30.92% of its 13F portfolio. Cowbird Capital is also relatively very bullish on the stock, setting aside 7.75 percent of its 13F equity portfolio to MCW.

Due to the fact that Mister Car Wash Inc. (NYSE:MCW) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there were a few hedge funds who sold off their full holdings heading into Q4. It's worth mentioning that Israel Englander's Millennium Management cut the biggest investment of all the hedgies tracked by Insider Monkey, worth close to $26.6 million in stock. Brandon Haley's fund, Holocene Advisors, also dropped its stock, about $10.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 7 funds heading into Q4.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Mister Car Wash Inc. (NYSE:MCW) but similarly valued. We will take a look at International Game Technology PLC (NYSE:IGT), DoubleVerify Holdings, Inc. (NYSE:DV), HollyFrontier Corporation (NYSE:HFC), SLM Corp (NASDAQ:SLM), Element Solutions Inc. (NYSE:ESI), Squarespace Inc. (NYSE:SQSP), and TFS Financial Corporation (NASDAQ:TFSL). This group of stocks' market valuations are similar to MCW's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IGT,36,490976,4 DV,10,496623,-6 HFC,24,411801,-6 SLM,27,891503,0 ESI,28,649935,5 SQSP,11,93960,-1 TFSL,9,133035,0 Average,20.7,452548,-0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.7 hedge funds with bullish positions and the average amount invested in these stocks was $453 million. That figure was $4229 million in MCW's case. International Game Technology PLC (NYSE:IGT) is the most popular stock in this table. On the other hand TFS Financial Corporation (NASDAQ:TFSL) is the least popular one with only 9 bullish hedge fund positions. Mister Car Wash Inc. (NYSE:MCW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MCW is 49. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 31.1% in 2021 through December 9th and beat the market again by 5.1 percentage points. Unfortunately MCW wasn't nearly as popular as these 5 stocks and hedge funds that were betting on MCW were disappointed as the stock returned -0.4% since the end of September (through 12/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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

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