Did Hedge Funds Make The Right Call On Aaron’s, Inc. (AAN)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtAaron’s, Inc. (NYSE:AAN) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Aaron’s, Inc. (NYSE:AAN) was in 25 hedge funds’ portfolios at the end of the first quarter of 2020. AAN shareholders have witnessed a decrease in hedge fund interest in recent months. There were 32 hedge funds in our database with AAN holdings at the end of the previous quarter. Our calculations also showed that AAN 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).

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

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Brown Hawk Ridge Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now let’s take a look at the latest hedge fund action encompassing Aaron’s, Inc. (NYSE:AAN).

How are hedge funds trading Aaron’s, Inc. (NYSE:AAN)?

At Q1’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -22% from the fourth quarter of 2019. By comparison, 20 hedge funds held shares or bullish call options in AAN a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Is AAN A Good Stock To Buy?

Among these funds, HG Vora Capital Management held the most valuable stake in Aaron’s, Inc. (NYSE:AAN), which was worth $45.6 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $22.2 million worth of shares. Diamond Hill Capital, Hawk Ridge Management, and Arrowstreet 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 HG Vora Capital Management allocated the biggest weight to Aaron’s, Inc. (NYSE:AAN), around 4.44% of its 13F portfolio. Rip Road Capital is also relatively very bullish on the stock, earmarking 3.81 percent of its 13F equity portfolio to AAN.

Since Aaron’s, Inc. (NYSE:AAN) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of hedge funds that slashed their positions entirely by the end of the first quarter. Intriguingly, Alexander Mitchell’s Scopus Asset Management said goodbye to the largest position of all the hedgies tracked by Insider Monkey, comprising close to $49 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dumped its stock, about $37.3 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 7 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks similar to Aaron’s, Inc. (NYSE:AAN). We will take a look at First Midwest Bancorp Inc (NASDAQ:FMBI), Workiva Inc (NYSE:WK), Central Garden & Pet Co (NASDAQ:CENT), and Heartland Express, Inc. (NASDAQ:HTLD). All of these stocks’ market caps are closest to AAN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FMBI 11 37778 0
WK 16 125379 -1
CENT 19 108821 2
HTLD 11 28377 -3
Average 14.25 75089 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $75 million. That figure was $164 million in AAN’s case. Central Garden & Pet Co (NASDAQ:CENT) is the most popular stock in this table. On the other hand First Midwest Bancorp Inc (NASDAQ:FMBI) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Aaron’s, Inc. (NYSE:AAN) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on AAN as the stock returned 99.5% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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