In the shadow of a 55% pullback since October, let’s not understate things by saying that GoPro Inc. (NASDAQ:GPRO) shares have been disappointing. GoPro stock has been downright painful to own for those who decided to ride out the storm.
There are two schools of thought regarding steep selloffs, of course. In the one camp you’ve got investors who believe everything happens for a reason, and if GPRO is in the gutter now then it’s because the efficient market has accurate spread and interpreted all the information available about GoPro and deemed it worth the current price around $43.
At the other end of the spectrum are those who believe the rest of the market just doesn’t see the bigger picture, and that GoPro stock will recover sharply once the company reports stunningly strong sales of its wearable cameras over the course of 2015.
Which side of the table is right? Or more pertinently, where is GoPro stock going from here? As is so often the case high-profile companies, the truth is somewhere in the middle.
GoPro Stock Gets Lots of Love, Lots of Hate
To be clear, all stocks have their critics and fans, within the media, and among investors. Most stocks, however, aren’t as polarized or as polarizing as GoPro stock.
Take, for instance, Wednesday morning’s news report that JMP Securities has once again reiterated an “outperform” rating on GPRO, and once again informed investors it believes GoPro stock is worth every bit of $105 per share. It’s odd, in that the more GoPro stock has fallen, the louder JMP has pounded the table (like here, here, and here).
It’s one thing to be bullish on a stock, but this kind of behavior is a little ridiculous.
At the other end of the love/hate continuum are those that believe the launch of a competing (and cheaper) product from Chinese company Xiaomi. Oppenheimer managing director Andrew Uerkwitz noted last week following the announcement:
“If Xiaomi does launch a camera, [it] has a really good shot at taking leading share, taking big share against GoPro [in Asia]. One thing that we think Xiaomi has going for it is that it’s got a really great user base, it’s got a really good following in China and other Asian countries.”
Though that’s only a potential problem for GoPro in China, don’t forget that Apple Inc. (NASDAQ:AAPL) won a wearable camera-mount patent in January. While Apple has yet to even hint at the creation of an action-camera, there’s little doubt it could do so, and leverage its name in such a way that could crush GoPro.
Plenty of people were more than willing to predict big problems for GoPro in the wake of that news.
The interesting part about all these stances? There’s not a lot of moderate, “in between” opinions. Most of analysts, pundits, and investors either love it or hate it.
Look for Something in the Middle
So, which is it? Is GoPro stock one competitor’s launch away from disaster, or are GPRO shares destined to more than double in price as JMP Securities insists?
Most realistically, neither … at least not in the foreseeable future. The most plausible outcome from here is something in between the two extreme expectations. Xiaomi will create a headwind in China, and if it’s not Apple, then a U.S. competitor will sooner than later materialize to create competition in the United States. That puts the kibosh on the JMP Securities’ bullish outlook.
On the other hand, much like Apple with its iPhone, GoPro will be able to leverage its well-recognized brand name to keep its lead in the wearable camera space (which there’s clearly a market for).
It’s not a very sexy or scintillating call. It is, however, a realistic outlook — most of the time, established companies don’t produce jaw-dropping results (good or bad) for very long.
And there’s plenty of context to expect merely mediocre results from GoPro and GoPro stock.
We’ve Seen This Before
Rare is the company that truly has a wide moat to keep competitors at bay. In fact, even the venerable Apple has to work very hard to fend off other smartphone makers and retain its market share.
To really get a good idea of what’s about to happen to GoPro though, one only has to look at what’s just recently happened within the 3D printer industry.
Back in 2012 and 2013 when 3D printers finally because semi-affordable for consumers and small companies, stocks of dominant names like Stratasys, Ltd. (NASDAQ:SSYS) and 3D Systems Corporation (NYSE:DDD) soared because both of those companies were quite profitable, and growing rapidly.
They were so profitable, in fact, that in 2014 a whole slew of other manufacturers — even including powerhouse Hewlett-Packard Company (NYSE:HPQ) — decided to get into the game. A price war has ensued, and as a result, margins in the 3D printing game will be and already are being pressured.
The market still exists, and is still growing, but there’s too much opportunity at hand to let Stratasys and 3D Systems have it all without at least competing for it.
In the same sense, the success GoPro has found in the wearable market will draw newcomers to the industry. Some will last, and others won’t. All of them will collectively slow GoPro’s growth rate, though.
Bottom Line for GPRO
Yes, the recent slide from GoPro stock is more of an opportunity than a liability; the hysteria surrounding the end of the stock lockup and whispers about launches of competing cameras were simply given too much credence. On the other hand, investors waiting for GPRO to reach the JMP Securities target of $105 may have a long wait ahead of them.
Analysts collectively see the company earnings $1.68 per share of GoPro stock in 2016. Even given two years to get there, at $105 per share with earnings of $1.68, the trailing P/E would then be a ridiculous 62.5.
Yes, the current trailing P/E is a frothy 47, but bear in mind GoPro is still in startup mode. It’s not going to be given that startup-valuation leeway at the end of next year. A more plausible price target would be something well south of $105, but likely well north of the current price near $43.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
