Maran Capital Management, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. In the third quarter of 2021, Maran Partners Fund returned -3.1%, net of all fees and expenses, which brings the year-to-date return to +48.3%, net. Over the past five years, the fund has compounded at the annualized rate of +22.2%, net of all fees and expenses. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Maran Capital Management, in its Q3 2021 investor letter, mentioned American Outdoor Brands, Inc. (NASDAQ: AOUT) and discussed its stance on the firm. American Outdoor Brands, Inc. is a Columbia, Missouri-based outdoor products provider with a $322.2 million market capitalization. AOUT delivered a 34.15% return since the beginning of the year, while its 12-month returns are up by 48.92%. The stock closed at $22.72 per share on November 1, 2021.
Here is what Maran Capital Management has to say about American Outdoor Brands, Inc. in its Q3 2021 investor letter:
“American Outdoor Brands has continued to execute and demonstrate operational savvy. Its direct-toconsumer (DTC) reach is best-in-class, and it has managed the recent supply chain backdrop well. The company has built brands and grown brands.
Despite impressive operating performance, AOUT remains a “show-me” story in the eyes of investors on the capital allocation front. I’m pleased that the company has been patient and has not overpaid for acquisitions, but I believe the opportunity exists to create significant value via capital allocation.
With $4/sh of net cash and a decent chance of generating another $2/sh of cash over the next year (against a $22 stock price), AOUT may want to consider taking a page out of the Clarus playbook. (Recall, Clarus repurchased 10% of its shares outstanding at an average price of $4.40 per share in 2015 and 2016 when it was out of favor with investors.) AOUT could repurchase up to 10% of its shares now, and after gaining recognition from the market for being strong stewards of capital, would always have the option of using their shares as currency for future M&A.
Partly because of the uncertainty regarding AOUT’s capital allocation philosophy and strategy, the stock trades at around 5x EBITDA, far below my estimate of intrinsic value. The company can both take advantage of its depressed valuation and eliminate the capital allocation uncertainty in one fell swoop. The value-creation potential is tremendous.”
Based on our calculations, American Outdoor Brands, Inc. (NASDAQ: AOUT) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. AOUT was in 16 hedge fund portfolios at the end of the first half of 2021. American Outdoor Brands, Inc. (NASDAQ: AOUT) delivered a -16.72% return in the past 3 months.
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 115 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.
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Disclosure: None. This article is originally published at Insider Monkey.
