Were Hedge Funds Right About Piling Into Avalara, Inc. (AVLR)?

The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31st. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Avalara, Inc. (NYSE:AVLR).

Avalara, Inc. (NYSE:AVLR) investors should be aware of an increase in enthusiasm from smart money recently. Avalara, Inc. (NYSE:AVLR) was in 56 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 48. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 46 hedge funds in our database with AVLR holdings at the end of September. Our calculations also showed that AVLR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Tim Woolley of Polar Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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. 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. With all of this in mind we’re going to go over the new hedge fund action surrounding Avalara, Inc. (NYSE:AVLR).

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

At the end of December, a total of 56 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AVLR over the last 22 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

More specifically, Alkeon Capital Management was the largest shareholder of Avalara, Inc. (NYSE:AVLR), with a stake worth $433.5 million reported as of the end of December. Trailing Alkeon Capital Management was Tensile Capital, which amassed a stake valued at $210.3 million. Renaissance Technologies, SQN Investors, and Polar 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 Tensile Capital allocated the biggest weight to Avalara, Inc. (NYSE:AVLR), around 24.68% of its 13F portfolio. Ivy Lane Capital is also relatively very bullish on the stock, earmarking 14.15 percent of its 13F equity portfolio to AVLR.

As aggregate interest increased, key hedge funds have been driving this bullishness. Anomaly Capital Management, managed by Ben Jacobs, initiated the most outsized position in Avalara, Inc. (NYSE:AVLR). Anomaly Capital Management had $25.5 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $22.5 million position during the quarter. The other funds with brand new AVLR positions are Philip Timon’s Owls Nest Partners, Robert W. Koehn’s Ivy Lane Capital, and Joe Magyer’s Lakehouse Capital.

Let’s also examine hedge fund activity in other stocks similar to Avalara, Inc. (NYSE:AVLR). We will take a look at Westinghouse Air Brake Technologies Corporation (NYSE:WAB), Wix.Com Ltd (NASDAQ:WIX), Liberty Global plc (NASDAQ:LBTYA), Black Knight, Inc. (NYSE:BKI), Natura &Co Holding S.A. (NYSE:NTCO), Sunrun Inc (NASDAQ:RUN), and iQIYI, Inc. (NASDAQ:IQ). All of these stocks’ market caps match AVLR’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.9 hedge funds with bullish positions and the average amount invested in these stocks was $1372 million. That figure was $1314 million in AVLR’s case. Sunrun Inc (NASDAQ:RUN) is the most popular stock in this table. On the other hand Natura &Co Holding S.A. (NYSE:NTCO) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Avalara, Inc. (NYSE:AVLR) is more popular among hedge funds. Our overall hedge fund sentiment score for AVLR is 90. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Unfortunately AVLR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AVLR were disappointed as the stock returned -14.1% since the end of the fourth quarter (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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