Tripadvisor Inc (NASDAQ:TRIP) reported its second quarter financial results in the after-hours on Thursday. The travel specialist reported weaker-than-expected results, as it missed the Street’s expectation for both profit and revenues. Tripadvisor Inc (NASDAQ:TRIP) reported total revenue of $405 million for the quarter along with adjusted earnings of $79 million or $0.54 per diluted share. Even though the company reported a 25% year-over-year increase in revenues, analysts’ were expecting the company to report earnings of $0.55 per share on revenue of $413 million. The company’s performance in North America was better, as the total revenue on the continent jumped by 31% year-over-year to $211 million, representing 52% of the total revenues. The company faced headwinds due to the strong dollar, which negatively impacted overseas revenues, like it did many other U.S-based companies operating globally. The earnings miss by the travel specialist company hit the stock hard yesterday, as it dropped by more than 13%.
The smart money appears to have predicted the headwinds that would be buffeting Tripadvisor in the near future. Heading into the second quarter, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in Tripadvisor Inc (NASDAQ:TRIP), with a total investment of $1.16 billion. That was a large drop from the 45 hedge funds which had a total investment of $1.11 billion in the stock at the end of 2014. Considering the fact that the stock jumped by more than 11% during the January – March period, we can see that hedge funds also pulled money out of the stock while it was riding high. Tripadvisor would not immediately falter and did gain another 5% or so in the second quarter, but is now down by about 4% since the end of the first quarter.
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 139% over the last 34 months and outperformed the S&P 500 Index by 81 percentage points (see the details here).
Likewise, other research (not our own) has shown insider purchases are also effective piggybacking methods for investors that can lead to greater returns. That’s why we believe investors should pay attention to what hedge funds and insiders are buying and keep them apprised of this information. Looking at Tripadvisor Inc (NASDAQ:TRIP), President of Vacation Rentals at Tripadvisor, Dermot Halpin sold around 14,310 shares during the first half of 2015. One of the Directors at Tripadvisor, Liberty Tripadvisor Holdings, Inc. acquired one share on June 25.
Let’s take a look at the latest hedge fund action encompassing Tripadvisor Inc (NASDAQ:TRIP).
