Here's What Negatively Impacted AutoZone (AZO) in Q4

Fenimore Asset Management, an investment management company, released its Q4 2025 investor letter. A copy of the same can be downloaded here. The stock market was solid in 2025 but volatile. While investors balanced AI enthusiasm, economic uncertainty, and monetary policy concerns.  The summer rally was driven by AI-related spending and economic resiliency, whereas the fourth quarter saw a more volatile market due to valuation pressures and macro uncertainty. Stocks from the large-cap technology and communication services sectors led the market in the quarter, with the S&P 500 Index rising 2.66%. The firm believes that the trend of AI stocks outpacing high-quality stocks is unsustainable. In Q4 2025, Fenimore Small Cap Strategy returned -4.12%, trailing its benchmark, the Russell 2000 Index’s 2.19% return. The underweight exposure to low-quality stocks drove the underperformance in the quarter. Fenimore Dividend Focus Strategy declined -4.41% in Q4 compared to the Russell Midcap Index’s 0.16% return. Furthermore, Fenimore Value Strategy declined -1.17% in Q4 compared to the Russell Midcap Index’s 0.16% return. Investments in the financial and industrial sectors led to the relative underperformance of the Strategy in the quarter. The firm expects mixed market conditions in 2026 as many AI-related stocks look expensive while high-quality companies are trading at multi-year lows, creating opportunities. In addition, please check the fund’s top five holdings to know its best picks in 2025.

 In its fourth-quarter 2025 investor letter, Fenimore Asset Management highlighted stocks such as AutoZone, Inc. (NYSE:AZO). AutoZone, Inc. (NYSE:AZO) was among the key performance detractors in Fenimore Value Strategy during the quarter. AutoZone, Inc. (NYSE:AZO) is a retailer of automotive replacement parts and accessories. The one-month return of AutoZone, Inc. (NYSE:AZO) was 2.16%, and its shares gained 7.34% of their value over the last 52 weeks. On January 15, 2026, AutoZone, Inc. (NYSE:AZO) stock closed at $3,465.45 per share, with a market capitalization of $57.64 billion.

Fenimore Asset Management stated the following regarding AutoZone, Inc. (NYSE:AZO) in its fourth quarter 2025 investor letter:

"Our top detractors to performance were BRO, AutoZone, Inc. (NYSE:AZO), and FAST. Despite the headwinds, we believe that their underlying business fundamentals remain strong. Despite solid revenue growth, AZO’s higher operating expenses and a substantial, non-cash LIFO inventory charge negatively impacted earnings. The opening of more than 140 new stores and investments in supply chain hubs were the sources of these costs. While these front-loaded expenses pressured quarterly margins, we see them as astute capital allocation for long-term market share gains, especially in its commercial segment."

AutoZone, Inc. (NYSE:AZO) is not on our list of 30 Most Popular Stocks Among Hedge Funds. According to our database, 60 hedge fund portfolios held AutoZone, Inc. (NYSE:AZO) at the end of the third quarter, compared to 65 in the previous quarter. In the first quarter of fiscal 2026, AutoZone, Inc. (NYSE:AZO) reported revenue of $4.6 billion marking an increase of 8.2% compared to Q1 of 2025. While we acknowledge the potential of AutoZone, Inc. (NYSE:AZO) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered AutoZone, Inc. (NYSE:AZO) and shared the list of stocks Jim Cramer discussed. In addition, please check out our hedge fund investor letters Q4 2025 page for more investor letters from hedge funds and other leading investors.

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