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Hedge Funds Aren’t Crazy About Aaron’s, Inc. (AAN) Anymore

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Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Aaron's, Inc. (NYSE:AAN) in this article.

Aaron's, Inc. (NYSE:AAN) has seen a decrease in hedge fund interest in recent months. Aaron's, Inc. (NYSE:AAN) was in 18 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 39. Our calculations also showed that AAN isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the eyes of most stock holders, hedge funds are perceived as slow, outdated investment tools of yesteryear. While there are more than 8000 funds with their doors open at the moment, Our researchers hone in on the aristocrats of this group, around 850 funds. These investment experts shepherd the majority of the hedge fund industry's total capital, and by tailing their top stock picks, Insider Monkey has deciphered various investment strategies that have historically outstripped Mr. Market. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Wil Harkey Nantahala Capital
Wil Harkey Nantahala Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. Keeping this in mind we're going to take a look at the recent hedge fund action regarding Aaron's, Inc. (NYSE:AAN).

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

At first quarter's end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in AAN a year ago. With hedge funds' capital changing hands, there exists a select group of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Is AAN A Good Stock To Buy?
Is AAN A Good Stock To Buy?

Among these funds, Royce & Associates held the most valuable stake in Aaron's, Inc. (NYSE:AAN), which was worth $16.8 million at the end of the fourth quarter. On the second spot was Arrowstreet Capital which amassed $11.5 million worth of shares. Ancora Advisors, Solas Capital Management, and Verdad Advisers 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 Solas Capital Management allocated the biggest weight to Aaron's, Inc. (NYSE:AAN), around 6.12% of its 13F portfolio. Verdad Advisers is also relatively very bullish on the stock, dishing out 1.77 percent of its 13F equity portfolio to AAN.

Due to the fact that Aaron's, Inc. (NYSE:AAN) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain "tier" of money managers who sold off their full holdings last quarter. At the top of the heap, David Brown's Hawk Ridge Management said goodbye to the biggest investment of the 750 funds monitored by Insider Monkey, totaling an estimated $15 million in stock, and Parag Vora's HG Vora Capital Management was right behind this move, as the fund dumped about $13.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 5 funds last quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Aaron's, Inc. (NYSE:AAN) but similarly valued. These stocks are Kelly Services, Inc. (NASDAQ:KELYB), Partner Communications Company Ltd (NASDAQ:PTNR), Black Diamond Therapeutics, Inc. (NASDAQ:BDTX), Tenneco Inc (NYSE:TEN), Chuy's Holdings Inc (NASDAQ:CHUY), Cars.com Inc. (NYSE:CARS), and Shoe Carnival, Inc. (NASDAQ:SCVL). This group of stocks' market valuations are similar to AAN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KELYB,1,234,0 PTNR,1,12725,0 BDTX,17,141069,-1 TEN,28,196401,3 CHUY,8,54348,-5 CARS,18,154447,-1 SCVL,11,72384,0 Average,12,90230,-0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $90 million. That figure was $69 million in AAN's case. Tenneco Inc (NYSE:TEN) is the most popular stock in this table. On the other hand Kelly Services, Inc. (NASDAQ:KELYB) is the least popular one with only 1 bullish hedge fund positions. Aaron's, Inc. (NYSE:AAN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AAN is 45.3. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately AAN wasn't nearly as popular as these 5 stocks and hedge funds that were betting on AAN were disappointed as the stock returned 6.6% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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