For stocks, recent institutional buying is a promising sign, but a high level of institutional ownership isn t.

When investment funds, pension managers and other well-financed folks buy shares, especially those of smaller companies, they tend to drive prices higher, studies show. However, a higher price today makes tomorrow s return smaller than it otherwise would be.

The three companies below recently may have grown popular among institutions. All three are members of the S&P SmallCap 600 index, meaning that their stock market values are relatively low. For each, institutions have bought more than 10% of outstanding shares over the past two quarters, and now own more than 90%. Also, each stock is up big this year at least 30%.

Callaway Golf

Institutional ownership: 95%
Year-to-date price gain: 31%
Forward P/E: 35

Money and golf go together like beer and darts, so it s little surprise that last year s plunge in stock and house wealth drove sales of club and ball maker Callaway Golf down 15% and turned its profit negative. Callaway has a clean balance sheet and popular products, so with consumer spending picking up again, the company is expected to increase its sales 6% this year and swing back to profitability. Its stock price has doubled since last summer. A few potential season-spoilers are looming though. First, a surprisingly popular new ball offered by competitor TaylorMade threatens Callaway s plan to increase market share in the category. Second, poor spring weather has kept some U.S. golf courses closed for longer than usual this year. Third, a strong dollar could hurt overseas orders, which account for about half of company sales.

True Religion

Institutional ownership: 95%
Year-to-date price gain: 55%
Forward P/E: 15

U.S. shoppers don t let factors like widespread unemployment, falling real incomes and burdensome personal debt come between them and high-end objects for sale at the mall. Witness the blazing sales growth at True Religion, a maker of $200 to $300 jeans. The company s stock has multiplied 30 times in value in just six years. Plenty of investors are now betting against it nearly one-third of publicly available shares have been sold short in hopes of being bought back later at a low price. That seems risky. Profits for the company are so rich at the moment that the stock, despite its run-up, trades at a reasonable 15 times earnings. Also, there were a mere 70 True Religion stores at the end of 2009, so management can focus expansion in rich markets, like Westchester County, N.Y., London and Tokyo.

BJ s Restaurants

Institutional ownership: 95%
Year-to-date price gain: 33%
Forward P/E: 39

BJ s Restaurants owns and operates just fewer than 100 casual eateries that brew their own beer. The company had increased its restaurant count by more than 20% a year for a decade until the recent recession, which caused sales at its longstanding restaurants to contract for six straight quarters. Now, with consumer spending growing again, management is planning a 13% expansion this year. Previously, management has stated its hope to eventually expand the chain to 300 restaurants. The stock looks expensive at 39 times this year s earnings forecast, and perhaps for that reason, about one-quarter of available shares have been sold short.