Hedge Funds Were Right About These 5 Sinking Stocks

Below we take a look at why Hedge Funds Were Right About These 5 Sinking Stocks. For our methodology and a more comprehensive list, please see Hedge Funds Were Right About These 10 Sinking Stocks.

5. Sea Limited (NYSE:SE)

Number of Hedge Fund Shareholders: 77

Year-to-Date Returns: -66.1%

Kicking off the first half of the list is Sea Limited (NYSE:SE), which hedge funds began piling into in early 2019, just in time for the stock’s meteoric rise over the following two-and-a-half years. Hedge fund ownership of SE peaked along with the stock in the third quarter of 2021 and has cratered by 36% over the past two quarters.

Sea Limited (NYSE:SE) remains an intriguing long-term investment, boasting three high-growth, synergistic businesses in the form of gaming platform Garena, ecommerce platform Shopee, and digital payments platform SeaMoney, the latter of which grew revenue by 360% in Q1. There have been some cracks in its armor however, including a slowdown in Garena’s user base, which could have a trickledown effect to the other platforms and highlights the risk of basing a massive expansion project into other territories primarily on the strength of one popular game.

The Baron New Asia Fund is one of the many funds that have unloaded Sea Limited (NYSE:SE) in recent quarters, explaining its decision to do so in the fund’s Q1 2022 investor letter:

“Sea Limited, a global digital gaming and e-commerce company, detracted from performance for the period held. Similar to other online consumer businesses, Sea faced significant multiple compression in the quarter, exacerbated by a slowdown in user growth at its key Free Fire digital game and mounting investments in its e-commerce operation, particularly in new markets like Brazil. We exited our position as we lost confidence in the long- term unit economics in some of Sea’s new markets and were concerned by the simultaneous slowdown in revenue growth and increase in underlying cash burn.”