It seems no matter what GoPro Inc (NASDAQ:GPRO) does or what new products the company launches, there is a competitor in the wings that can do it cheaper and/or better. GPRO stock has struggled to make headway in a market flooded with Hero camera knockoffs and cheaper competitors for years now, and the results are evident in GoPro’s weakening bottom line. But GoPro was looking to turn things around via the hot new drone market sweeping across the country.
But karma is not on GoPro’s side in the drone market either. The company could have gotten a head start with its cutting-edge Karma HD camera drone, but GoPro botched the launch earlier this year. Plagued by hardware issues, the Karma is only just now getting off the ground in terms of sales, allowing competitors to flood the market. In fact, leading drone manufacturer DJI just announced the DJI Spark and companion DJI GO app, which retails for $499 — undercutting the Karma by about $300.
We’ve all seen this story by now, and it doesn’t end well for GPRO stock.
Click to Enlarge It’s no wonder that the brokerage community has jumped ship on the shares. According to Zacks, only one of the 11 analysts following GPRO stock rate it a “buy,” compared to five “holds” and five “sells.” What’s more, GPRO is trading just 20 cents shy of the consensus 12-month price target of $8.54. With little to go on in terms of revenue growth, GPRO stock is in danger of a round of valuation downgrades or price target cuts. Yes, it can get worse from here.
On the short-selling front, GPRO bears once again smell blood in the water. The number of GPRO shares sold short jumped by 8% during the most recent reporting period, leaving roughly 31.9 million shorted. You would think that with about 31% of the stock’s float sold short that a covering rally might be in the cards, but given the company’s performance, it would take a major bullish rush to send these bears scrambling to cover their positions.
Even GPRO options traders are getting in on the bearish act. Currently, the June put/call open interest ratio rests at 1.66, with puts handily besting calls among front-month options. As for implieds, options traders are pricing in about a 6% move for GPRO through June expiration, placing the upper bound near $8.75 and the lower bound near $7.75.
2 Trades for GPRO Stock
Put Spread: Traders looking to jump on the bearish bandwagon might want to consider a June $7.50/$8 bear put spread. At last check, this spread was offered at 15 cents, or $15 per pair of contracts. Breakeven lies at $7.85, while a maximum profit of 35 cents, or $35 per pair of contracts, is possible if GPRO stock closes at or below $7.50 when June options expire.
Call Sell: If a more neutral-to-bearish stance fits your trading style, then a June $9.50 strike call sell position may fit the bill. Such a trade is especially useful if you already own GPRO stock, as it allows you to offset some of your portfolio losses in the event of a selloff, but also allows you exposure to any upside up until the stock trades at or above $9.50.
At last check, this option was bid at 15 cents, or $15 per contract. A sold call allows you keep the premium as long as GoPro stock closes below $9.50 at expiration. On the downside, if GPRO rallies above $9.50 prior to expiration, you could be forced to provide 100 shares at current market value for each call sold, which could be quite costly if you do not have enough stock on hand to cover the call.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
