GoPro Inc (NASDAQ:GPRO) is slated to release its third-quarter earnings report after the close of trading tomorrow, and, once again, GPRO stock options are pricing in a rather large post-earnings move of nearly 13%. Sentiment is broadly negative on GPRO stock, and third-quarter expectations are low, but the stock’s reaction will depend more on guidance that recent-quarter results.
Diving into earnings expectations, the consensus has its sights set on a GoPro third-quarter loss of 36 cents per share, down sharply from a profit of 25 cents per share in the year-ago quarter. Revenue is expected to fall 21% to $315.99 million.
That said, GoPro launched its Hero 5 and Karma drone cameras during the quarter. And while neither is expected to make a big dent in third-quarter results, guidance will be heavily scrutinized to see if GPRO stock will hold its full-year revenue projection for between $1.35 billion and $1.5 billion. On this front, Wall Street is expecting sales of $1.39 billion — just below the midpoint of GoPro’s guidance.
Click to Enlarge Technically, GPRO stock is positioned nicely heading into tomorrow’s report. The shares are fresh off a modest pullback to support in the $12.50 region, which is home to GoPro stock’s 200-day moving average. The selloff heading into earnings has also pushed GPRO stock into oversold territory, setting the shares up for potential bargain hunting following a solid quarterly report.
On the sentiment front, there are very few GPRO stock bulls left. Zacks reports that nine of the 15 analysts following the shares rate them a “hold” or worse, while the 12-month price target of $14 represents a meager 12% premium to yesterday’s close.
And while the number of GoPro stock shares sold short declined about 3% during the most recent reporting period, short interest still totals 33.2 million shares, or 33% of the stock’s total float.
Options traders are also heavily bearish on GRPO stock. Specifically, the total November put/call open interest ratio rests at 1.51, as puts outnumber calls by a wide berth among options set to expire within the next month. This ratio moderates slightly among in weekly Nov 4 series, however, coming in at 0.84. These additional weekly calls may be short sellers hedging their bets on a positive GPRO earnings reaction.
Overall, weekly Nov 4 series implieds are once again pricing in a potential post-earnings move of about 13%. This places the upper bound at $14.10, while the lower bound lies at $10.86 from Tuesday’s close. The $10 level is key support for GPRO stock, and a breach of this region could increase selling pressure. Meanwhile, a rally past $14 could have bullish implications, but only if follow through buying is able to push GRPO past $15, where trendline resistance is mounting.
2 Trades for GPRO Stock
Call Spread: Bearish sentiment on an underperforming stock is to be expected, but GPRO stock is trading at oversold levels heading into an earnings event. In other words, it appears that, barring any surprises, the worst has already been factored into the shares. As such, any positive news out of tomorrow’s report should have a bullish effect on the shares.
Those traders looking to take a risk on a GPRO earnings bounce might want to consider a Nov 4 $13/$14 bull call spread. At last check, this spread was offered at 27 cents, or $27 per pair of contracts. Breakeven lies at $13.27, while a maximum profit of 73 cents, or $73 per pair of contracts, is possible if GPRO stock closes at or above $14 when November options expire.
Put Spread: On the other hand, if GoPro adjusts its full-year guidance or hints at lower expectations for Hero 5 and/or Karma sales, the shares are going to fall. Traders siding with the bears might want to consider a Nov $10/$12 bear put spread.
At last check, this spread was offered at 72 cents, or $72 per pair of contracts. Breakeven lies at $11.28, while a maximum profit of $1.28, or $128 per pair of contracts, is possible if GPRO stock closes at or below $10 when November options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
