One of the most notable stocks of 2015 has been GoPro (GPRO) — and not in a good way.
Shares of GoPro have suffered a bloodbath this year, including, most recently, a harsh 10%-plus one-day decline on Dec. 14 following some bearish sentiment from a Morgan Stanley analyst.
That compounded the previous slide and leavers the current damage at over 70% this year — around 40% lower than GoPro’s IPO price.
After such a beating, it’s tempting to look for a silver lining — say, the fact that GPRO stock is now trading for just 16 times forward earnings. Taking that basic metric and comparing it to both the broader market and GoPro’s estimated long-term growth may hint at a bargain.
Over the next five years, GoPro earnings per share are estimated to expand by over 23% annually.
Investors shouldn’t be fooled into thinking that metric is enough to warrant a buy, though. Here’s why.
Stay Away from GoPro Stock
There are a few counterpoints to any GoPro-is-a-bargain bull case. Together, they make it pretty darn clear that there are better places for investors’ money.
First, let’s look at some numbers that offset the aforementioned price, earnings, growth comparison.
During the current quarter, sales are expected to drop by an ugly 17%. The quarter after, growth is barely on the board with a 1.6% expansion. Worse, that lack of growth is expected to show up on the bottom line; estimates for earnings have been sliced left and right by analysts in recent months. A quick recap:
- The consensus for the current quarter has gone from 89 cents three months ago to just 34 cents — a drop of 63%.
- The next quarter has seen similar pessimism, with Wall Street expecting just 9 cents per share vs. 25 cents a few months ago — a drop of 64%.
- For the full year, the consensus has been shaved by 34% to come in at just $1.17 … while next year’s have been shaved even more to $1.18 vs. a previous expectation for 17% growth.
Add it up, there’s reason to think that 23% long-term estimate could be hit with similar downward revisions … which in a sense erases the biggest bullish bullet point out there.
Now, let’s talk a bit about the “why” behind these numbers and GoPro’s struggles. The company is running into two large roadblocks with regards to continuing to grow.
The first is problems with broad adoption of its technology — something that many people expected after the initial success.
Morgan Stanley cited this issue in its recent downgrade of GoPro stock, noting that the company’s video editing software limits the usability of the tech and may limit the adoption of new technology (like the supposed savior drone, Karma) down the line. There are concerns that updated smartphones inherently offer far more access and usability with regards to storage and editing for folks who aren’t going on extreme adventures.
And that brings us to problem two: There’s a difference between GoPro being popular and being something that follows a consistent product cycle where users are compelled to upgrade. So even when we are talking about folks going on extreme adventures and relying on their GoPro cameras to capture them, we’re not necessarily talking about the kind of ongoing buyer base needed to meet growth expectations.
The company’s latest offering was framed as the savior to this issue, but slashed prices and the aforementioned downward revisions together seem to reflect a lack of demand.
A High-Flying Future for GoPro Stock?
Speaking of new offerings, it’s difficult to mention GoPro without mentioning the fact that some believe long-term investments in drones (as I mentioned already) and virtual reality will offset these issues.
But that’s a risky bet to make at this stage in the game. Those two buzzwords are vague and remain relatively unknown technologies with regards to pricing, long-term applications, the competitive landscape and more.
Put another way, they come with a lot of question marks — and you can bet there will be a lot of flops before either trend truly catches on.
Assuming GoPro will be one of the leaders in either or both space is quite the gamble at this stage, especially when the company is still working to iron out its core offering’s business model.
Don’t be fooled into thinking GPRO stock is a bargain — there are better, more reliable places to find growth and long-term potential.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
