It has been a really, really painful year for GoPro Inc (GPRO) stock investors. Shares are down more than 80% from their 52-week highs, and there are little signs that things will get better.
When GPRO reports its holiday quarter earnings after the bell on Wednesday, there won’t be much to brag about this time around. We know that; GoPro told us as much a few weeks ago when it released its preliminary Q4 results. The expected numbers were so bad, GoPro stock lost 20% of its value in a single day.
Oddly enough, that’s good news for anyone thinking about buying GoPro shares before or around earnings … it means expectations are low.
GPRO: Beware the Ratios!
GPRO stock, once a high-flying growth darling with prices nearing $100 per share, is now at risk of routinely trading below $10 per share. When this sort of epic meltdown happens, a tempting fallacy to fall victim to is the idea that shares are dirt cheap, and that one simply must be getting a deal at these rock-bottom levels.
Not only that, but look at the ratios! The famed P/E ratio sits at 8.9, a steep discount to the 20.9 P/E of the S&P 500. And trading at 0.87 times sales, it would seem that it’s hard to go wrong with GPRO.
Well, consider some of the numbers Wall Street’s expecting from GoPro and tell me if it sounds like a stock you’d want to buy. The consensus revenue estimate for Q4 is $499 million, down 21% year-over-year. That’s bad, yes, but not as bad as it’s actually going to be: GPRO itself expects just $435 million in fourth quarter sales, a 30% year-over-year decline.
It would seem that analysts need to dampen their already not-so-rosy expectations.
Moreover, Wall Street expects GPRO stock to post earnings of exactly 0 cents per share on a non-GAAP basis. They don’t expect much of a recovery in all of 2016, looking for revenue growth of less than 1% and expecting EPS to fall 23%.
That’s what happens when you blink your eyes and your buzz is over and competitors have swamped the market. While Wall Street was at one time extremely optimistic about GoPro’s ambitions in the virtual reality and drone areas, those segments aren’t doing anything for GPRO yet.
Similarly, GoPro loves to fancy itself a content company, and is trying to get its content licensing business off the ground, with little to show for it as of now.
Piper Jaffray’s Erinn Murphy just slashed GPRO stock’s price target from $9 per share to $7.50 per share in light of her belief that consensus Q1 revenue expectations around $300 million are overblown. She expects $272 million, while Citigroup thinks it’ll be more like $230 million to $250 million.
In any case, playing GoPro before earnings is like flipping a coin, and betting on GPRO long-term at this point could have even worse odds. Investors would be wise to wait until seeing an actual uptick — or even an expected uptick — in revenue before buying in.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
