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Is Avalara, Inc. (AVLR) Going to Burn These Hedge Funds?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Is Avalara, Inc. (NYSE:AVLR) a good investment right now?

Avalara, Inc. (NYSE:AVLR) has experienced a decrease in support from the world’s most elite money managers in recent months. AVLR was in 47 hedge funds’ portfolios at the end of December. There were 48 hedge funds in our database with AVLR positions at the end of the previous quarter. Our calculations also showed that AVLR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In today’s marketplace there are a multitude of indicators stock market investors employ to analyze publicly traded companies. A couple of the most underrated indicators are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the best picks of the elite money managers can outclass the broader indices by a very impressive amount (see the details here).

New York Stock Exchange

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now let’s take a glance at the fresh hedge fund action encompassing Avalara, Inc. (NYSE:AVLR).

What have hedge funds been doing with Avalara, Inc. (NYSE:AVLR)?

Heading into the first quarter of 2020, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AVLR over the last 18 quarters. So, let’s examine 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 Avalara, Inc. (NYSE:AVLR), with a stake worth $186.2 million reported as of the end of September. Trailing Renaissance Technologies was Whale Rock Capital Management, which amassed a stake valued at $151.2 million. Alkeon Capital Management, Tensile Capital, and D E Shaw 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 Tensile Capital allocated the biggest weight to Avalara, Inc. (NYSE:AVLR), around 12.49% of its 13F portfolio. Calixto Global Investors is also relatively very bullish on the stock, setting aside 8.1 percent of its 13F equity portfolio to AVLR.

Seeing as Avalara, Inc. (NYSE:AVLR) has witnessed falling interest from the smart money, it’s easy to see that there exists a select few fund managers who were dropping their positions entirely in the third quarter. Intriguingly, James Crichton’s Hitchwood Capital Management cut the largest stake of all the hedgies monitored by Insider Monkey, comprising close to $37.3 million in call options, and Leon Shaulov’s Maplelane Capital was right behind this move, as the fund dropped about $22.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 1 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Avalara, Inc. (NYSE:AVLR). These stocks are 51job, Inc. (NASDAQ:JOBS), Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR), Cemex SAB de CV (NYSE:CX), and New York Community Bancorp, Inc. (NYSE:NYCB). This group of stocks’ market valuations are similar to AVLR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JOBS 8 19080 0
ASR 10 61093 6
CX 13 89214 2
NYCB 27 214458 0
Average 14.5 95961 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $96 million. That figure was $1055 million in AVLR’s case. New York Community Bancorp, Inc. (NYSE:NYCB) is the most popular stock in this table. On the other hand 51job, Inc. (NASDAQ:JOBS) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Avalara, Inc. (NYSE:AVLR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but still managed to beat the market by 1.9 percentage points. Hedge funds were also right about betting on AVLR as the stock returned -2.3% so far in Q1 (through March 9th) 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.

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