Is AZEK Stock A Buy or Sell?

After several tireless days we have finished crunching the numbers from nearly 900 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards The AZEK Company Inc. (NYSE:AZEK).

Is AZEK stock a buy? The AZEK Company Inc. (NYSE:AZEK) has experienced a decrease in hedge fund sentiment of late. The AZEK Company Inc. (NYSE:AZEK) was in 23 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 34. There were 34 hedge funds in our database with AZEK positions at the end of the third quarter. Our calculations also showed that AZEK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now 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 new hedge fund action surrounding The AZEK Company Inc. (NYSE:AZEK).

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

Heading into the first quarter of 2021, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -32% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AZEK over the last 22 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

More specifically, Zimmer Partners was the largest shareholder of The AZEK Company Inc. (NYSE:AZEK), with a stake worth $76.5 million reported as of the end of December. Trailing Zimmer Partners was Alyeska Investment Group, which amassed a stake valued at $56.1 million. Citadel Investment Group, Scopus Asset Management, and ZWEIG DIMENNA PARTNERS 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 Stormborn Capital Management allocated the biggest weight to The AZEK Company Inc. (NYSE:AZEK), around 3.41% of its 13F portfolio. ZWEIG DIMENNA PARTNERS is also relatively very bullish on the stock, dishing out 1.16 percent of its 13F equity portfolio to AZEK.

Since The AZEK Company Inc. (NYSE:AZEK) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few money managers that slashed their entire stakes by the end of the fourth quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management said goodbye to the largest stake of the 750 funds watched by Insider Monkey, comprising close to $20.2 million in stock. Phill Gross and Robert Atchinson’s fund, Adage Capital Management, also cut its stock, about $18 million worth. These transactions are interesting, as total hedge fund interest fell by 11 funds by the end of the fourth quarter.

Let’s now review hedge fund activity in other stocks similar to The AZEK Company Inc. (NYSE:AZEK). We will take a look at Choice Hotels International, Inc. (NYSE:CHH), AerCap Holdings N.V. (NYSE:AER), Janus Henderson Group plc (NYSE:JHG), Advanced Drainage Systems Inc. (NYSE:WMS), American Campus Communities, Inc. (NYSE:ACC), B2Gold Corp (NYSE:BTG), and Oshkosh Corporation (NYSE:OSK). This group of stocks’ market caps are similar to AZEK’s market cap.

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As you can see these stocks had an average of 25.6 hedge funds with bullish positions and the average amount invested in these stocks was $619 million. That figure was $261 million in AZEK’s case. AerCap Holdings N.V. (NYSE:AER) is the most popular stock in this table. On the other hand Choice Hotels International, Inc. (NYSE:CHH) is the least popular one with only 15 bullish hedge fund positions. The AZEK Company Inc. (NYSE:AZEK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AZEK is 30.3. 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 gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. A small number of hedge funds were also right about betting on AZEK as the stock returned 25% since the end of the fourth quarter (through 4/19) and outperformed the market by an even larger margin.

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