GoPro Inc (GPRO): Why is Smart Money Abandoning the Company?

It is common knowledge that there are numerous strategies for picking good stocks, but the art of stock-picking is quite cumbersome and complex for most investors. There are thousands of stocks to choose from, so how can individual investors select good stocks or at least avoid bad stocks? Choosing stocks based on a particular criteria using stock screeners might represent a suitable option, but this method can eliminate some high-potential stocks that could possibly generate big trading profits. Before proceeding to the stock selection process, individual investors should clearly formulate the purpose of their portfolios. Depending on whether investors are looking to generate current income or capital appreciation, the pool of stock candidates can differ. Moving on to the stock selection process, investors can also select potential equity investments by examining the basket of most-favored stocks among top hedge fund managers. This basket includes both income and growth stocks, and both small-cap and large-cap stocks, so investors will definitely find something that suits their investment strategies. With this in mind, let’s take a look at the recent hedge fund activity surrounding GoPro Inc (NASDAQ:GPRO).

Is GoPro Inc (NASDAQ:GPRO) a splendid investment right now? Hedge funds don’t appear to think so. The number of long hedge fund positions dropped by seven in recent months. GPRO was in 18 hedge funds’ portfolios at the end of December. There were 25 hedge funds in our database with GPRO positions at the end of the previous quarter. Those 18 hedge funds owned $237 million worth of GoPro’s shares, a little under 10% of the float.

In less than two years, GoPro has gone from being one of the hottest IPOs and stocks on the market, to one that has rapidly lost favor with investors. Shares skyrocketed out of the IPO gates in June of 2014, cresting $86 in early October of that year, a greater than 150% increase from the stock’s IPO price. However, sentiment and financial results began shifting shortly afterwards. Citron Research declared GoPro a short and slapped a $30 12-month price target on it in early October, while Oppenheimer downgraded the stock to ‘Sell’ later in October. Shares have plummeted to just $13.36 a year-and-a-half later.

The action-camera maker suffered a 31% year-over-year revenue decline in the fourth quarter of 2015, to $436 million, while it lost $0.08 per share. Even worse, the company’s guidance for the first quarter of this year and full 2016 year were well below analysts’ expectations, with GoPro anticipating first quarter revenue of just $160 million-to-$180 million, while analysts had predicted $298 million in revenue for the quarter. With GoPro’s cameras seemingly incapable of breaking away from their niche audience and new products not doing much to entice that audience to upgrade, GoPro has turned its attention to software in an effort to make video shot with its cameras easier to edit and thus hopefully attract more customers in the process, spending $105 million on two video editing apps late last month, Replay and Splice. Shares have rebounded slightly over the past month after sinking below $10 briefly, but still trade at a P/E of over 50.

Let’s now take a gander at the recent smart money action regarding GoPro Inc (NASDAQ:GPRO).

How have hedgies been trading GoPro Inc (NASDAQ:GPRO)?

At Q4’s end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a 28% fall from the third quarter. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were increasing their stakes meaningfully (or had already accumulated large positions).

According to Insider Monkey’s hedge fund database, Philippe Laffont’s Coatue Management has the most valuable position in GoPro Inc (NASDAQ:GPRO), worth close to $47.1 million, amounting to 0.5% of its total 13F portfolio. The second largest stake is held by Sageview Capital, managed by Edward Gilhuly and Scott Stuart, which holds a $30.6 million position; 15.3% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that hold long positions include Eric Chen’s Antipodean Advisors, John Griffin’s Blue Ridge Capital, and John Lykouretzos’ Hoplite Capital Management.

Because GoPro Inc (NASDAQ:GPRO) has faced declining sentiment from the aggregate hedge fund industry, logic holds that there is a sect of hedge funds that elected to cut their positions entirely in the third quarter. Intriguingly, Glenn Russell Dubin’s Highbridge Capital Management said goodbye to the largest investment of the 800 funds followed by Insider Monkey, worth close to $26 million in stock. Joel Greenblatt’s fund, Gotham Asset Management, also cut its stock, about $18.1 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 7 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to GoPro Inc (NASDAQ:GPRO). We will take a look at PIMCO Dynamic Credit Income Fund (NYSE:PCI), BGC Partners, Inc. (NASDAQ:BGCP), RSP Permian Inc (NYSE:RSPP), and IMAX Corporation (USA) (NYSE:IMAX). This group of stocks’ market values match GPRO’s market value.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $159 million. That figure was $237 million in GPRO’s case. RSP Permian Inc (NYSE:RSPP) is the most popular stock in this table. On the other hand PIMCO Dynamic Credit Income Fund (NYSE:PCI) is the least popular one with only 7 bullish hedge fund positions. GoPro Inc (NASDAQ:GPRO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are exhibiting positive recent sentiment towards. In this regard, we don’t think GoPro qualifies as a good purchase at this time.