Investors hoping GoPro Inc (GPRO) earnings would save the ailing stock were dealt a deathly blow last night. GoPro missed earnings on the top and bottom lines and was punished by a 20% drop in its stock price.
The action camera manufacturer is anticipating fourth quarter revenue to come in at $435 million which falls well short of Wall Street’s estimates of $511.9 million.
While shares have rallied back slightly in premarket trading this morning, they remain a far cry from Wednesday’s close. GoPro stock is a perfect example of the prescience of price charts.
The price action in GPRO stock has been betraying the company’s deteriorating fundamentals for months now, and last night’s earnings stinker confirms the price dive was warranted.
The question circling the minds of would-be GPRO stock owners is whether or not shares have dropped enough to finally price in all of the fundamental issues plaguing the company. The bulls could very well make the case that with the GoPro stock price now flirting with the single digits, max pessimism has been achieved.
Snatching up shares at $11 certainly offers less risk than those unfortunate enough to be long shares from the $60s.
And yet, attempting the old knife catch has yielded nothing but pain for buyers so far, so why should that change anytime soon? Selling rallies could the way to go until significant signs of a trend change materialize.
A Pair of Picture-Worthy Trades for GoPro
With volatility through the roof in GPRO, option trades should be limited to spreads. Buying calls or puts outright is terribly expensive right now.
Traders hoping today’s capitulation may signal a short-term low in the GoPro stock price could consider buying call spreads. Buy the April $12/$15 call spread for $1. The max loss is limited to the initial $1 debit and will be forfeited if GPRO stock sits below $12 at expiration. The max gain is limited to the distance between strikes minus the net debit, or $2, and will be captured if GoPro stock can rally back above $15 in the next three months.
If you think the pain keeps on coming for GoPro stock, consider buying a put spread to profit from its continued demise. Buy the April $11/$8 put spread for $1 or better. The max loss is limited to the initial $1 debit and will be forfeited if GoPro stock sits above $11 at expiration. The max gain is limited to the distance between strikes minus the net debit, or $2, and will be captured if GPRO can fall below $8 by April expiration.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
