GoPro (GPRO) stock is taking it on the chin Tuesday, with shares of the wearable action camera company off as much as 8% in Tuesday’s afternoon trading.
It’s certainly not the only stock in the gutter, as concerns over China’s manufacturing industry sent the Dow Jones Industrial Average tumbling 300 points, but GoPro stood out nonetheless.
And GoPro stock wasn’t only one of Wall Street’s most notable decliners by percentage, but by volume. By late morning, GoPro shares were seeing volumes 4.5 times higher than normal.
GPRO, which was one of 2014’s hottest stocks, is now off more than 30% year-to-date and down about 55% from its 52-week highs.
That’s great news for investors with a healthy dose of patience and bravery, who can snap up shares at fire-sale prices.
GPRO Is Oversold
The reasons behind the GPRO selloff aren’t entirely clear, at least not from a fundamental perspective.
Shares trade at just 20 times forward earnings, hardly a stretch for a stock expected to grow earnings per share by about 40% this year.
Shares of GoPro’s all-star supplier, Ambarella (AMBA), which makes the low-power HD video compression chips that go in GoPro devices, were also off big time this morning, down 4% by afternoon trading. High-beta, high-growth names are simply unpopular today.
There’s only one thing you could hold against GPRO stock on a day like today, and that is the company’s growing exposure to China. If you think the Chinese economy is going to hell in a handbasket, you could lazily justify a bearish case by pointing your quivering finger at GoPro’s growing exposure to Asia: In Q2, revenues in Asia and Pacific area countries rose 183% year-over-year, from $24.9 million to $70.4 million.
But that’s a shortsighted argument, because Asia accounted for just 16.8% of the company’s total revenue last quarter. Plus, if the yuan continues to lose value against the dollar, GoPro should benefit from margin expansion as its labor costs in China fall.
If you believe in technical analysis, you’ll note that the current GPRO stock price, around $43 per share, is well below both the 50- and 200-day moving averages of $55.91 and $53.84, respectively.
But the 50-day SMA is also still higher than the 200-day SMA, and the Relative Strength Index sits at 24, indicating shares are extremely oversold right now.
While I do believe that stocks like Netflix (NFLX) — which trade almost purely on sentiment and non-financial metrics like user growth — deserve to sell off, GPRO is different. It’s coming off a blowout quarter in which sales rose 72% year-over-year and earnings more than doubled.
Don’t get it twisted: GoPro is the baby, not the bathwater. Throw it out too soon and you’ll find yourself regretting it until you pick it back up again.
As of this writing, John Divine was long a Sep 18, 2015 $102 put on NFLX stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
