Should I Avoid Avalara, Inc. (AVLR)?

In this article we will check out the progression of hedge fund sentiment towards Avalara, Inc. (NYSE:AVLR) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Avalara, Inc. (NYSE:AVLR) worth your attention right now? The best stock pickers were getting less bullish. The number of long hedge fund bets were trimmed by 5 in recent months. Avalara, Inc. (NYSE:AVLR) was in 24 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 56. Our calculations also showed that AVLR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to take a look at the new hedge fund action surrounding Avalara, Inc. (NYSE:AVLR).

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

At third quarter’s end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. On the other hand, there were a total of 46 hedge funds with a bullish position in AVLR a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Panayotis Takis Sparaggis’s Alkeon Capital Management has the most valuable position in Avalara, Inc. (NYSE:AVLR), worth close to $500.7 million, accounting for 0.8% of its total 13F portfolio. Sitting at the No. 2 spot is Greg Poole of Echo Street Capital Management, with a $183 million position; the fund has 1.3% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism consist of Douglas Dossey and Arthur Young’s Tensile Capital, Bobby Yazdani and Babak Poushanchi’s Cota Capital and Paul Marshall and Ian Wace’s Marshall Wace LLP. In terms of the portfolio weights assigned to each position Tensile Capital allocated the biggest weight to Avalara, Inc. (NYSE:AVLR), around 18.29% of its 13F portfolio. Ivy Lane Capital is also relatively very bullish on the stock, designating 14.77 percent of its 13F equity portfolio to AVLR.

Because Avalara, Inc. (NYSE:AVLR) has faced bearish sentiment from the smart money, it’s easy to see that there were a few money managers that decided to sell off their entire stakes by the end of the third quarter. Interestingly, Brian Ashford-Russell and Tim Woolley’s Polar Capital sold off the largest stake of the 750 funds monitored by Insider Monkey, worth close to $76.9 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dropped its stock, about $29.9 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 5 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Avalara, Inc. (NYSE:AVLR). We will take a look at Elanco Animal Health Incorporated (NYSE:ELAN), Check Point Software Technologies Ltd. (NASDAQ:CHKP), Doximity Inc. (NYSE:DOCS), Franklin Resources, Inc. (NYSE:BEN), Masimo Corporation (NASDAQ:MASI), Logitech International SA (NASDAQ:LOGI), and FactSet Research Systems Inc. (NYSE:FDS). This group of stocks’ market values are closest to AVLR’s market value.

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As you can see these stocks had an average of 26.9 hedge funds with bullish positions and the average amount invested in these stocks was $732 million. That figure was $1071 million in AVLR’s case. Elanco Animal Health Incorporated (NYSE:ELAN) is the most popular stock in this table. On the other hand Doximity Inc. (NYSE:DOCS) is the least popular one with only 19 bullish hedge fund positions. Avalara, Inc. (NYSE:AVLR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AVLR is 32.1. 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 negative signal and 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 31.1% in 2021 through December 9th and surpassed the market again by 5.1 percentage points. Unfortunately AVLR wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); AVLR investors were disappointed as the stock returned -14.2% since the end of September (through 12/9) 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 most of these stocks already outperformed the market in 2021.

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

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