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Should You Avoid Aaron’s, Inc. (AAN)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. What do these smart investors think about Aaron’s, Inc. (NYSE:AAN)?

Aaron’s, Inc. (NYSE:AAN) shareholders have witnessed a decrease in support from the world’s most elite money managers lately. 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.

Jonathan Barrett Luminus Management

Jonathan Barrett of Luminus Management

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a glance at the key hedge fund action surrounding Aaron’s, Inc. (NYSE:AAN).

Hedge fund activity in Aaron’s, Inc. (NYSE:AAN)

At Q1’s end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from the fourth quarter of 2019. On the other hand, there were a total of 20 hedge funds with a bullish position in AAN a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

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.

Seeing as Aaron’s, Inc. (NYSE:AAN) has witnessed declining sentiment from the smart money, we can see that there lies a certain “tier” of fund managers that elected to cut their entire stakes last quarter. At the top of the heap, Alexander Mitchell’s Scopus Asset Management dropped the largest stake of the “upper crust” of funds tracked by Insider Monkey, worth close to $49 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dropped about $37.3 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 7 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Aaron’s, Inc. (NYSE:AAN) but similarly valued. 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). This group of 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 13.9% in 2020 through June 10th but still managed to beat the market by 14.2 percentage points. Hedge funds were also right about betting on AAN as the stock returned 100.3% so far in Q2 (through June 10th) 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.