GPRO Stock: Why Q1 Earnings DON’T MATTER for GoPro Inc

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Brace yourself, GoPro Inc (GPRO) stock owner. You’re probably about to witness a wild swing in GoPro’s stock price.

GPRO Stock: Why Q1 Earnings DON'T MATTER for GoPro IncIt’s nothing you haven’t seen before, of course. GPRO stock is off 76% in the last year, and in the last 52 weeks its share price has fluctuated between $9 and $65.

At levels near $11.50, is GoPro stock finally a buy?

While shares certainly look tempting at a PEG ratio of just 0.85 (any measure below 1 is considered extremely cheap), I’m hesitant to recommend GPRO on metrics alone. In 2015, I’ll admit, I recommended GoPro stock a number of times throughout the year, making it one of my worst calls of the year.

Anyways, enough about me. Here are the metrics GPRO stock investors need to look for when the Q1 earnings report comes out after-hours on Thursday.

GPRO Stock: It’s Not About Q1

Listen, first-quarter results are going to be awful. We know this for a fact. When GoPro reported Q4 earnings in early February, it also issued guidance for Q1 and for FY 2016, and it wasn’t pretty.

Analysts expect GPRO to lose 60 cents per share, down from earnings per share of 24 cents in the year-ago quarter. And revenue is expected to crumble, plunging 53.4% year-over-year to $169.08 million.

But what’s far, far, far more important is the guidance that management issues this quarter. An awful first-quarter is already built into expectations.

GoPro, for its part, guided for full-year revenue between $1.35 billion and $1.5 billion. Wall Street clearly isn’t confident in GPRO’s ability to execute, since consensus estimates are calling for 2016 revenue of $1.37 billion, well below the company’s own $1.425 billion midpoint.

To that extent, Q1 earnings will matter for GPRO stock, since a setback in first-quarter revenue will make it all the more difficult to meet full-year expectations. However, the company will almost certainly update its full-year 2016 forecasts, and that will be the crucially important part of the press release Thursday afternoon.

And therein lies the rub: A fair price for GPRO stock really depends on what the demand will look like for its Karma quadcopter drone, which the company has said will debut in the first half of 2016. That’s pretty unknowable, seeing as we still don’t have the specs or price point of the device.

The GoPro Hero5, the next iteration of its (formerly?) popular wearable camera device, isn’t expected until October. So, unless GoPro’s quadcopter flies off the shelves, the near-term for GPRO stock could be pretty painful.

We haven’t seen any notable developments, revenue-wise, from GoPro’s stated dream of becoming a content company, but I suppose I’ll leave the door open for news on that front Thursday. I certainly don’t see many people preordering their “Omni” 6-camera array for virtual reality at the price of $4,999 (and a shipping date of Aug. 17).

Bottom Line for GoPro

At the end of the day, the problem with GPRO stock is that it’s just so wildly speculative right now. Sales are in an unforgiving downtrend, and there’s a real argument to be made that much of this is due to the increasing functionality and durability of smartphones, which won’t be going anywhere anytime soon.

Recent sell-through statistics hinted that the company was struggling to move product in Q1, so unless the negative sentiment is just slightly more negative than it should be, or CEO Nick Woodman can weave a compelling turnaround vision, buying GPRO stock will be nothing more than a high-risk speculation for quarters to come.

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.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/05/gpro-stock-gopro-inc-earnings/.

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