GoPro Stock Is Too Hot to Hold

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GoPro - GoPro Stock Is Too Hot to Hold

Source: GoPro.com

GoPro (GPRO) makes really cool specialized cameras, accessories and software that allows adrenaline junkies and other high-activity people to capture their latest adventures.

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Source: GoPro website

GoPro went public in June at $24 per share, but has quickly jumped to just under $70 — a 190% return from IPO prices. Of course, even if you weren’t so lucky and got in a month ago, you’re still looking at a 50% to 60% return in just a few months.

What Is the Buzz About?

GoPro has built a loyal following of amateur and professional athletes who can attach these cameras to their helmets, bikes, even bodies to capture the action as it happens. This enthusiasm has catapulted GoPro’s camcorders to market share leader status in the U.S. last year.

GoPro’s 2013 revenue jumped 87% to $985 million, and profits surged 88% to $61 million, but the strain of rapid growth appeared to wear on GPRO as Q1 2014 revenues came in 8% lower year-over-year, and profits declined by 52%.

However, the worries were alleviated when GoPro reported Q2 earnings — its first as a publicly traded company — and showed revenues that jumped 38% to $244.6 million, topping analyst expectations. GoPro stated that increased sales in the second quarter were driven by higher sales for GoPro’s Hero 3+ Black Edition and accessories. Non-GAAP profits came to 8 cents per share, vs. a 3-cent loss in the year-ago period.

On a GAAP basis, GoPro’s loss actually accelerated from 6 cents to 24 cents. And while I typically would be leery of any company that reports such a large divergence between GAAP and non-GAAP numbers, it makes sense for GoPro, which had to account for the cost of stock options as the stock price of the company skyrocketed.

GPRO – Too Hot to Hold

To be fair, I think GoPro is a good business. It is making money, has targeted a growing niche that it can dominate and has proved its business prowess by garnering a very loyal following of users.

But considering GPRO stock is trading at 357 times earnings … well, compared to just about anything, that’s an expensive stock.

Moreover, there are too many questions at play outside of GoPro’s ability to serve its niche market.

For instance, will GoPro be able to leverage its brand to get into security cameras for police work, as some hope, or profitably expand into the video sharing market that it has recently ventured into and many other markets? GoPro’s reliance on a sole product line in a niche market that might be reaching saturation could cause problems if it can’t properly diversify its offerings.

Also of concern is GoPro’s ability to maintain price and margin on a $200-$400 video camera when competitors can quickly, and more cheaply, produce a similar product or pair that type of technology with smart phones for a more portable device that enhances consumer usability.

GoPro stock is a clear sell while the getting is good, but keep an eye on the company. Once valuations come down off the moon, and management has gained credibility through execution, GoPro’s stock will be worth another look.

As of this writing, Kenneth Fick did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/gopro-stock-gpro-too-hot/.

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