GoPro (GPRO) stock is dropping like a rock today, continuing a severe pullback in its share price that began in early October. GPRO stock more than quadrupled in value since its IPO in late June at at $24, setting record highs just over three months later when shares peaked at near $100 a pop.
By that point, many investors found themselves wondering the same thing: Just how high can the GoPro stock price go, and how quickly can it get there?
GoPro’s Unforced Error: Weaseling Around Lockup Period
On Oct. 2, the San Mateo-based wearable camera-maker announced that its founders, Nick and Jill Woodman, were founding a charity that allowed the two insiders to avoid the traditional “lockup period” designed to prevent insiders from unloading shares in the months immediately following an IPO.
JPMorgan (JPM), the lead underwriter of the GoPro IPO, facilitated the sneaky move, releasing 5.8 million of the roughly 20.5 million public shares to the Jill + Nicholas Woodman Foundation. While almost every charity under the sun has a stated mission or purpose from the minute it’s founded, the Jill + Nicholas Woodman Foundation to this day has no stated mission. There’s still no word about exactly what the charity is supporting.
Wall Street figured out the mission of the Jill + Nicholas Woodman Foundation pretty quickly though: The mission gave the founders a way to cash out of their holdings before the lockup period expired.
Oppenheimer: It’s All Downhill From Here
Investors didn’t appreciate this sly tactic, promptly sending GPRO stock plunging after the seemingly bogus foundation was announced. Although the stock briefly recovered from the intraday decline, GoPro’s meteoric rise on Wall Street had hit a ceiling. Shortly thereafter, rumors swirled that the legendary Formula One driver Michael Schumacher — who sustained a serious brain injury last year while skiing — may have been more severely injured because he was wearing a GoPro camera at the time.
Although the journalist who made the claim later recanted his statement, the damage was done, and GoPro stock briefly fell below the $70 level before staging a minor comeback on the recanted claim.
Today GPRO stock is back below $70, but this time it looks like it could be more than just a brief slip. Shares shed nearly 8% in trading Monday as Oppenheimer analyst Andrew Uerkwitz slammed the stock on valuation concerns, initiating coverage of the actions sports-focused company at “underperform” and giving the stock a $45 price target.
Citing high short interest (about 40% of outstanding shares are being sold short) and frothy multiples, the Oppenheimer analyst has a convincing argument. Even Uerkwitz’s $45 price target values GPRO stock at 35 times his 2016 EPS estimate of $1.28, a very hefty number for a forward P/E ratio.
No wonder Jill and Nick Woodman wanted to sell out early.
I think I speak for others who want to see good in the world when I say I’m waiting eagerly with bated breath for the noble mission statement of the Jill + Nicholas Woodman foundation. Will it be world hunger? The environment? Education? Poverty? One shudders in awe and admiration at the scope of the charitable plans the Woodmans must have if their mission statement alone has taken nearly a full month to craft.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid.