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Arlo Technologies, Inc. (ARLO): Are Hedge Funds Right About This Stock?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Arlo Technologies, Inc. (NYSE:ARLO) based on that data and determine whether they were really smart about the stock.

Is Arlo Technologies, Inc. (NYSE:ARLO) worth your attention right now? Prominent investors were taking a bullish view. The number of long hedge fund positions moved up by 1 recently. Our calculations also showed that ARLO isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). ARLO was in 10 hedge funds’ portfolios at the end of the first quarter of 2020. There were 9 hedge funds in our database with ARLO holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Carlo Cannell

J. Carlo Cannell of Cannell Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to check out the new hedge fund action regarding Arlo Technologies, Inc. (NYSE:ARLO).

What have hedge funds been doing with Arlo Technologies, Inc. (NYSE:ARLO)?

At Q1’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ARLO over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Is ARLO A Good Stock To Buy?

The largest stake in Arlo Technologies, Inc. (NYSE:ARLO) was held by Cannell Capital, which reported holding $5.2 million worth of stock at the end of September. It was followed by Millennium Management with a $3.7 million position. Other investors bullish on the company included D E Shaw, Renaissance Technologies, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Cannell Capital allocated the biggest weight to Arlo Technologies, Inc. (NYSE:ARLO), around 2.15% of its 13F portfolio. AWH Capital is also relatively very bullish on the stock, earmarking 1.54 percent of its 13F equity portfolio to ARLO.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. AQR Capital Management, managed by Cliff Asness, assembled the biggest position in Arlo Technologies, Inc. (NYSE:ARLO). AQR Capital Management had $0.2 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also made a $0 million investment in the stock during the quarter.

Let’s also examine hedge fund activity in other stocks similar to Arlo Technologies, Inc. (NYSE:ARLO). We will take a look at Kaleido BioSciences, Inc. (NASDAQ:KLDO), Spirit of Texas Bancshares, Inc. (NASDAQ:STXB), Emerald Holding, Inc. (NYSE:EEX), and Falcon Minerals Corporation (NASDAQ:FLMN). This group of stocks’ market valuations are closest to ARLO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KLDO 3 5030 1
STXB 4 9654 0
EEX 11 5613 1
FLMN 22 29270 3
Average 10 12392 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $15 million in ARLO’s case. Falcon Minerals Corporation (NASDAQ:FLMN) is the most popular stock in this table. On the other hand Kaleido BioSciences, Inc. (NASDAQ:KLDO) is the least popular one with only 3 bullish hedge fund positions. Arlo Technologies, Inc. (NYSE:ARLO) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately ARLO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ARLO investors were disappointed as the stock returned 6.2% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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