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Did Hedge Funds Make The Right Call On Smith & Wesson Brands, Inc. (AOBC) ?

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 Smith & Wesson Brands, Inc. (NASDAQ:AOBC) based on that data and determine whether they were really smart about the stock.

Smith & Wesson Brands, Inc. (NASDAQ:AOBC) has seen an increase in hedge fund interest of late. Our calculations also showed that AOBC 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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 E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. Keeping this in mind we’re going to go over the fresh hedge fund action encompassing Smith & Wesson Brands, Inc. (NASDAQ:AOBC).

What have hedge funds been doing with Smith & Wesson Brands, Inc. (NASDAQ:AOBC)?

Heading into the second quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 100% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AOBC over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Smith & Wesson Brands, Inc. (NASDAQ:AOBC), with a stake worth $24.2 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $4.1 million. Alden Global Capital, D E Shaw, and Blue Grotto 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 Blue Grotto Capital allocated the biggest weight to Smith & Wesson Brands, Inc. (NASDAQ:AOBC), around 2.07% of its 13F portfolio. Alden Global Capital is also relatively very bullish on the stock, earmarking 1.23 percent of its 13F equity portfolio to AOBC.

Consequently, key hedge funds have jumped into Smith & Wesson Brands, Inc. (NASDAQ:AOBC) headfirst. Millennium Management, managed by Israel Englander, assembled the biggest position in Smith & Wesson Brands, Inc. (NASDAQ:AOBC). Millennium Management had $4.1 million invested in the company at the end of the quarter. Ben Gordon’s Blue Grotto Capital also made a $2.8 million investment in the stock during the quarter. The following funds were also among the new AOBC investors: Brett Hendrickson’s Nokomis Capital, George Baxter’s Sabrepoint Capital, and Mark Coe’s Intrinsic Edge Capital.

Let’s also examine hedge fund activity in other stocks similar to Smith & Wesson Brands, Inc. (NASDAQ:AOBC). These stocks are First Foundation Inc (NASDAQ:FFWM), MGP Ingredients Inc (NASDAQ:MGPI), The Shyft Group, Inc. (NASDAQ:SPAR), and Heritage Commerce Corp. (NASDAQ:HTBK). This group of stocks’ market caps are closest to AOBC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FFWM 12 20576 -1
MGPI 11 10980 -4
SPAR 17 57823 -1
HTBK 9 15364 -4
Average 12.25 26186 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $56 million in AOBC’s case. The Shyft Group, Inc. (NASDAQ:SPAR) is the most popular stock in this table. On the other hand Heritage Commerce Corp. (NASDAQ:HTBK) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Smith & Wesson Brands, Inc. (NASDAQ:AOBC) 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 AOBC as the stock returned 159.3% 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.