GoPro Inc (GPRO) Q1 Earnings Could Launch a Crazy Breakout

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Are there any positives left to squeeze out of action camera maker GoPro Inc. (NASDAQ:GPRO)? When the company burst onto the market a few years ago, its products were revolutionary and resonated with a generation that idolized sharing their experiences with others online. But better-equipped smartphones, competitors and knockoffs have flooded the market with cheaper and more convenient alternatives, and compounding things, the fad has faded quickly — as has GPRO stock.

GoPro, Inc. reports earnings Thursday, April 27

Source: Shutterstock

What’s worse for buy-and-hold GoPro investors is that the company has yet to lay out any form of path toward growth from its current fading market.

For short-term speculative traders, however, there may be one last hurrah before GoPro stock succumbs and heads into the low single digits.

That last hurrah arrives next week in the form of GoPro’s first-quarter earnings report, due out Thursday, April 27, after the bell. Wall Street is currently expecting earnings to improve from a loss of 63 cents per share last year to a loss of 44 cents per share this year. Revenue, meanwhile, is expected to rise 13.3% year-over-year to $207.89 million.

GoPro will be banking on sales of its new Hero 5 camera and it’s Karma drone, which should have shaken off their botched product launches earlier this year.

GoPro’s Chart

GPRO stock chart view 1
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Technically speaking, GPRO stock is at a key inflection point. The shares have gained more than 23% since mid-March and are now hovering just below resistance at $9. GoPro has also pulled its 10-day and 50-day moving averages into a bullish cross.

This short-term indicator could have bullish implications for GPRO stock heading into next week’s quarterly report, and a breakout above $9 could bring additional technical buyers to the table.

Sentiment and Shorts

While it may not seem like it, GoPro’s abysmal sentiment backdrop may also be a short-term driver for the shares. Zacks reports that 11 of the 13 analysts following GPRO stock rate the shares a “hold” or worse. Furthermore, the stock is also trading north of the 12-month consensus price target of $8.67.

In short, practically any positive news from next week’s report could prompt an upgrade or price-target increase for GPRO shares.

There is also the possibility of a short squeeze situation.

As of the most recent reporting period, roughly 30.8 million shares of GPRO were sold short, representing more than 30% of the stock’s total float. If shares do breakout above $9, it could force some of the weaker hands here to buy back their positions, adding to this rally.

Of course, if GoPro shorts are worried about an earnings rally, they’re certainly not hedging their bets with call options.

The current April/May put/call open interest ratio for GoPro is about the worst I’ve ever seen it at 4.22, with puts more than quadrupling calls among near-term options. Furthermore, the 28 April put/call OI ratio doesn’t budge, resting at 4.23 for those options most affected by next week’s report.

In short, with practically everyone betting against GPRO, and the shares in the midst of a short-term recovery, there is plenty of opportunity for sideline money to be brought to bear on the shares.

GoPro merely has to offer a smidgen of hope in its Q1 report.

2 Ways to Trade GPRO Stock

Call Spread: Traders looking for a contrarian play on GoPro heading into next week’s report might want to consider a May $9/$10 bull call spread.

At last check, this spread was offered at 34 cents, or $34 per pair of contracts. Breakeven lies at $9.34, while a maximum profit of 66 cents, or $66 per pair of contracts, is possible if GoPro  stock closes at or above $10 when May options expire.

Put Spread: If, like most of Wall Street, you are not convinced that GoPro has anything positive left to report, then a bearish May $8/$9 put spread may be more to your liking.

At last check, this spread was offered at 29 cents, or $29 per pair of contracts. Breakeven lies at $8.71, while a maximum profit of 71 cents, or $71 per pair of contracts, is possible if GPRO stock closes at or below $8 when May options expire.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/04/gopro-inc-gpro-q1-earnings-could-launch-a-crazy-breakout/.

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