GoPro (GPRO) stock has had a rough year, now trading at post-IPO lows with a loss of more than 70% in 2015 alone.
A big reason for this loss is that new product launches have disappointed this year, thereby causing sales and profits to fall well shy of analyst expectations.
Given GPRO stock losses, there are many who think it can’t possibly get worse for GoPro, but based on its latest move, that’s not entirely true.
GoPro Cuts Prices
One of the big reasons for GoPro’s disappointing year is that it completely botched the pricing on its Hero4 camera. The Hero4 Session was initially priced at $399, a price point that proved to be far too high. The company then cut its price by $50 to $349, but even that has had little effect.
Then, on Dec. 4, after what many analysts presumed was a weak Black Friday weekend for GoPro product sales, the company cut its Hero4 Session price all the way to $199! This is a price cut not often seen for a thriving company, nor is it typical for a product that is still relatively new. After this price cut, GoPro’s Hero4 Session is now priced comparably to its older Hero+ model.
In retrospect, this move by GoPro suggests weak consumer demand, and desperation on behalf of the company to drive demand higher.
Historically, though, price cuts to this degree do not reflect well on a company’s stock, as there are many industries of the market where investors can identify a cause and effect of such actions.
How Discounting Creates Further Turmoil
Two recent examples of product discounts causing turmoil for a company’s stock is with Sodastream (SODA) and Michael Kors (KORS).
KORS has fallen 60% since its stock high in early 2014. This happened after channel checks unveiled widespread discounting across its product line. Since then, comparable store sales growth has topped out, margins have fallen and inventory levels have remained an ongoing issue.
That said, SODA is an even better example as it relates to GPRO.
SODA stock has fallen from a high over $70 in 2013 to $15.50 right now. In the years prior to 2014, SODA was building an impressive ecosystem of retailers that carried its line of products, including Walmart (WMT), Best Buy (BBY) and Bed Bath & Beyond (BBBY), among others.
However, demand has faded fast, and SODA products can most commonly be found in each store’s respective clearance racks. These lower price points have caused SODA’s revenue to decline rapidly, and also its stock price.
SODA, KORS and GPRO were all three heavily shorted stocks, where cases had been made that bullish consumer demand was not sustainable.
Perhaps the most important thing to consider surrounding the effects of discounting is that in all three instances, it helped to support the short thesis that Sodastream, Michael Kors and GoPro products were a fad, and were fading quickly.
Could GPRO Stock Fall Further?
Hence, any time a company slashes prices on one of its newer products by nearly 50% it sends a strong message to investors that demand is fading fast, thereby supporting the short thesis.
With GPRO stock down 70% this year, and trading at just 13 times next year’s expected earnings, it is hard to imagine too much more downside. Further, it would seem that all bad news and discounted products are priced into GoPro stock.
However, when discounting intensifies, and the short thesis proves true, stocks can crash to obscenely cheap prices. Keep in mind, KORS trades at just nine times earnings, suggesting that GPRO stock could still have a ways to fall.
As of this writing, Brian Nichols was long KORS.
