Is KAR Stock A Buy or Sell?

In this article we will take a look at whether hedge funds think KAR Auction Services Inc (NYSE:KAR) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is KAR stock a buy? The best stock pickers were getting less optimistic. The number of long hedge fund positions went down by 14 in recent months. KAR Auction Services Inc (NYSE:KAR) was in 27 hedge funds’ portfolios at the end of December. The all time high for this statistic is 44. Our calculations also showed that KAR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 41 hedge funds in our database with KAR holdings at the end of September.

Jay Petschek of Corsair Capital Management

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. Now let’s take a gander at the key hedge fund action regarding KAR Auction Services Inc (NYSE:KAR).

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

Heading into the first quarter of 2021, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -34% from one quarter earlier. By comparison, 26 hedge funds held shares or bullish call options in KAR a year ago. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

The largest stake in KAR Auction Services Inc (NYSE:KAR) was held by Cardinal Capital, which reported holding $103.1 million worth of stock at the end of December. It was followed by Two Sigma Advisors with a $15.9 million position. Other investors bullish on the company included AQR Capital Management, One Fin Capital Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position One Fin Capital Management allocated the biggest weight to KAR Auction Services Inc (NYSE:KAR), around 5.53% of its 13F portfolio. Hill City Capital is also relatively very bullish on the stock, setting aside 4.04 percent of its 13F equity portfolio to KAR.

Since KAR Auction Services Inc (NYSE:KAR) has faced declining sentiment from hedge fund managers, logic holds that there were a few money managers who sold off their entire stakes heading into Q1. Interestingly, Jeffrey Gates’s Gates Capital Management said goodbye to the biggest investment of all the hedgies monitored by Insider Monkey, valued at an estimated $82.2 million in stock, and Gabriel Plotkin’s Melvin Capital Management was right behind this move, as the fund said goodbye to about $46.1 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 14 funds heading into Q1.

Let’s go over hedge fund activity in other stocks similar to KAR Auction Services Inc (NYSE:KAR). These stocks are Sprout Social, Inc. (NASDAQ:SPT), Group 1 Automotive, Inc. (NYSE:GPI), TreeHouse Foods Inc. (NYSE:THS), Burning Rock Biotech Limited (NASDAQ:BNR), Phreesia, Inc. (NYSE:PHR), Chimera Investment Corporation (NYSE:CIM), and Accolade, Inc. (NASDAQ:ACCD). This group of stocks’ market values resemble KAR’s market value.

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As you can see these stocks had an average of 21.3 hedge funds with bullish positions and the average amount invested in these stocks was $215 million. That figure was $242 million in KAR’s case. Sprout Social, Inc. (NASDAQ:SPT) is the most popular stock in this table. On the other hand Burning Rock Biotech Limited (NASDAQ:BNR) is the least popular one with only 12 bullish hedge fund positions. KAR Auction Services Inc (NYSE:KAR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KAR is 51.1. 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 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 beat the market again by 0.9 percentage points. Unfortunately KAR wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on KAR were disappointed as the stock returned -17% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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