Trade of the Day: GoPro (GPRO)

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It’s never easy picking a bottom in a stock, and trying to catch a falling knife can be scary. With shares of GoPro (GPRO) trading to a fresh 52-week low of $17.24 on Monday, this is exactly what buying call options in GPRO must feel like.

GPRO

Analysts have bailed on GRPO recently, as there have been numerous downgrades and reduced price targets following GoPro’s earnings miss and lowered guidance in late October.

The company reported a third-quarter profit of $0.25 a share on revenue just north of $400 million. Wall Street was looking for $0.29 a share on sales above $433 million.

GoPro also said it expected current-quarter earnings of $0.35-$0.45 a share on revenue between $500 and $550 million. Analysts had penciled in $0.82 a share on revenue just above $690 million.

The company is also losing some of its overall market share as competition heats up and cheaper models come to market. This has cut into GoPro’s gross margins, as their cameras sell for higher premiums.

However, GPRO might be considered best-of-breed by most analysts in a crowded market. Future content deals will likely set the company apart from the competition if its game plan comes together. The GoPro channel is now available on Amazon Fire TV, and other licensing deals could be in the works.

The company’s CEO has recommitted to its marketing efforts, which he admitted were slack in recent quarters. Shares have crumbled from a 52-week high of $69.75, and the downside momentum has been breathtaking to watch.

There is likely risk to the low teens, or even to single-digits, on another lousy earnings report, which is why this holiday season will be extremely important for GPRO. Fourth-quarter earnings will likely be announced in late January or early February, but this headline risk could be removed by trading near-term GPRO options.

The GPRO January 20 calls (GPRO160115C00020000) could be used by bullish traders to play a rebound to $20. However, it might be best to wait for a move above $18 before going long.

If shares lose their luster and fall back below $17.25, bearish traders could target the GPRO January 15 puts (GPRO160115P00015000) for a further breakdown in the stock.

With GPRO shares down roughly 65% from their all-time high, a bullish position looks tempting as a contrarian trade against the current sentiment.

 

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Article printed from InvestorPlace Media, https://investorplace.com/2015/12/trade-of-the-day-gopro-gpro/.

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