GoPro Inc (GPRO) stock jumped as much as 5% in early trading on Friday after a bullish note from JPMorgan Chase & Co. (JPM).
GoPro, the wearable action camera-maker that’s taken Wall Street by storm since its June IPO, has been one of the most exciting issues of 2014. Trading around $60 per share, GPRO stock is currently up an incredible 150% from its IPO price of $24 this summer.
But JPMorgan thinks GPRO stock is undervalued after a nearly 40% fall from its highs near $100 per share.
The GoPro Valuation
Specifically, JPMorgan upgraded GoPro stock from “neutral” to “overweight,” citing its attractive valuation after its recent, rapid fall. Since the announcement of a GoPro secondary offering at $75 per share on Nov. 19, the stock is off nearly 30%.
At the time of the announcement, GPRO stock had been trading around $85 a pop, so the pricing of the secondary offering was viewed by some as a sign that insiders thought the stock was overvalued. Still others thought the secondary offering was simply an innocent way to raise capital while GoPro stock was still a hot commodity.
Of course, the secondary offering also gave insiders a chance to get out of the investment. And why not? CEO Nick Woodman shocked Wall Street on Oct. 2 by announcing a cunning way to avoid the lockup period: He gifted his shares to a newly founded charitable trust named after himself and his wife with no mission statement.
The lockup period, by the way, is designed to prevent insiders from cashing out early, and expires for GPRO insiders on Dec. 26.
Interestingly enough, JPMorgan, as the lead underwriter of the GPRO stock offering, directly facilitated Woodman’s idea and allowed him to use this loophole. In doing so, JPMorgan helped to send GoPro shares on a downward spiral — a downward spiral that’s been so severe the investment bank now thinks the shares are a steal.
In other words, JPMorgan itself has been both a bearish and a bullish catalyst for GPRO stock in the past few months alone.
Drones and Holiday Sales to the Rescue!
Even though GPRO has been one of the worst-performing stocks in recent days as investors sell shares ahead of the lockup expiration, let’s remember why Wall Street has had such a love-and-hate relationship with the camera company to begin with.
Most importantly, GoPro’s sales growth has been phenomenal and is expected to continue at breakneck speed in the near future. Fiscal 2014 sales are expected to jump 36% year-over-year, while the fourth quarter alone is expected to generate a 57.4% sales spike as retailers seize on the popularity of the wearable cameras and stock up for consumers.
With stronger-than-expected retail sales in November, a blowout jobs report last month, and slumping gas prices padding consumers’ wallets, GPRO could legitimately have a monster quarter.
Beyond this holiday season, GoPro is reportedly planning to make consumer drones in an effort to expand its business to a new vertical and get ahead of the competition. So there are still plenty of reasons to be excited about GoPro as a company.
But investors should think twice before loading up on the volatile GPRO stock just because JPMorgan told you to.
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.
