Betting On Big Drop, Shorts Borrow All the GoPro Stock They Can

For GoPro Inc.(GPRO), now comes the hard part.

Bearish investors are out in full force betting against the video-camera maker’s stock price after it more than doubled throughout its first four days on the public markets. Whether GoPro can convince the skeptics of its future prospects will go a long way in determining the stock’s next move.

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The cost of borrowing GoPro shares, a proxy for short-selling activity, has “immediately become one of the highest in our system,” says Karl Loomes, market analyst at Astec Analytics, a unit of financial technology firm SunGard. In addition the utilization level–the percentage of shares available to loan that are actually being borrowed–is near 100%, Mr. Loomes says. It’s rare for a stock to have such a high utilization level.

“Both these figures suggest borrowers are snapping up all the available GoPro shares they can, and are willing to pay a high price to do so,” Mr. Loomes says. Astec didn’t immediately provide the exact number of shares available to loan.

Short sellers borrow shares to sell them in hopes of buying them back cheaper at a later date, aiming to profit from a price decline.

GoPro shares recently fell as much as 15%, on track for the first decline since the company went public last week. The stock jumped 31% in its debut on Thursday and then gained 14%, 13% and 20% in each of its next three days, respectively. It traded as high as $49.90 on Tuesday, more than double its $24 IPO price, and recently traded at $44.70.

GoPro makes a wearable high-definition video recorder that is best known for appealing to the extreme-sports crowd. People who ski, surf, scuba dive, bike and climb use GoPro cameras as a way to record and share their exploits. But the company has also broadened its appeal and is now the top-selling camcorder in the world by volume, according to market researcher IDC. It generated about $1 billion in revenue last year and about $60 million in profit.

As we’ve noted, it’s unclear whether investors should value the firm as purely a gadget maker, or a lifestyle brand, or a social-media firm, or some combination of all three.

No matter what kind of company it is, it looks like GoPro’s Wall Street honeymoon is coming to an end. And until GoPro can back up its high stock price with strong quarterly results, short sellers aren’t likely to relent in their pursuit against the stock.

“Although sharp and strong moves are common in the first days of securities lending activity of a newly listed company, and often unrelated to short selling activity, these numbers are dramatic even by those standards,” Mr. Loomes said.