Is AEO Stock A Buy or Sell?

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 fourth 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 5 years and analyze what the smart money thinks of American Eagle Outfitters Inc. (NYSE:AEO) based on that data.

Is AEO stock a buy or sell? American Eagle Outfitters Inc. (NYSE:AEO) was in 39 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 42. AEO has seen a decrease in enthusiasm from smart money lately. There were 42 hedge funds in our database with AEO positions at the end of the third quarter. Our calculations also showed that AEO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

In the financial world there are a lot of metrics market participants employ to size up their holdings. A duo of the less utilized metrics are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the top investment managers can trounce the broader indices by a significant amount (see the details here).

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s analyze the fresh hedge fund action surrounding American Eagle Outfitters Inc. (NYSE:AEO).

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

At Q4’s end, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AEO over the last 22 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

More specifically, Melvin Capital Management was the largest shareholder of American Eagle Outfitters Inc. (NYSE:AEO), with a stake worth $180.6 million reported as of the end of December. Trailing Melvin Capital Management was Samlyn Capital, which amassed a stake valued at $105.7 million. Millennium Management, Atreides Management, and Platinum Asset Management 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 Verdad Advisers allocated the biggest weight to American Eagle Outfitters Inc. (NYSE:AEO), around 5.07% of its 13F portfolio. MIK Capital is also relatively very bullish on the stock, designating 3.64 percent of its 13F equity portfolio to AEO.

Judging by the fact that American Eagle Outfitters Inc. (NYSE:AEO) has faced declining sentiment from the smart money, we can see that there lies a certain “tier” of money managers that decided to sell off their full holdings in the fourth quarter. Interestingly, Jeff Osher’s No Street Capital sold off the biggest position of the “upper crust” of funds followed by Insider Monkey, comprising close to $29.6 million in stock, and Michael Zimmerman’s Prentice Capital Management was right behind this move, as the fund dumped about $18.1 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 3 funds in the fourth quarter.

Let’s also examine hedge fund activity in other stocks similar to American Eagle Outfitters Inc. (NYSE:AEO). These stocks are Umpqua Holdings Corporation (NASDAQ:UMPQ), Taylor Morrison Home Corp (NYSE:TMHC), Seer, Inc. (NASDAQ:SEER), BRP Group, Inc. (NASDAQ:BRP), Cantel Medical Corp. (NYSE:CMD), Corsair Gaming, Inc. (NASDAQ:CRSR), and FormFactor, Inc. (NASDAQ:FORM). This group of stocks’ market values are closest to AEO’s market value.

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As you can see these stocks had an average of 20.3 hedge funds with bullish positions and the average amount invested in these stocks was $222 million. That figure was $869 million in AEO’s case. Taylor Morrison Home Corp (NYSE:TMHC) is the most popular stock in this table. On the other hand Corsair Gaming, Inc. (NASDAQ:CRSR) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks American Eagle Outfitters Inc. (NYSE:AEO) is more popular among hedge funds. Our overall hedge fund sentiment score for AEO is 79.9. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks returned 5.3% in 2021 through March 19th but still managed to beat the market by 0.8 percentage points. Hedge funds were also right about betting on AEO as the stock returned 48.8% since the end of December (through 3/19) 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.

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