Active camera and digital imaging specialist GoPro Inc (NASDAQ:GPRO) will report earnings after the markets close Thursday, and expectations on Wall Street are mixed.
Analysts have high hopes for the company’s newest product line, the higher-end HERO4 camera, but guidance remains a concern following the company’s cautious outlook in the third quarter.
Currently, Wall Street is expecting a fourth-quarter profit of 69 cents per share from GoPro. Revenue is expected to spike 61% year-over-year, coming in at $582 million.
EarningsWhisper.com indicates that expectations may be a bit higher, with the fourth-quarter whisper number arriving at 73 cents per share.
That said, the brokerage community’s optimism ends there. According to Zacks data, only four of the 12 analysts following GPRO stock rate the shares a “buy” or better, compared to seven “hold” ratings and one outright “sell.”
Still, analysts have high hopes going forward for GPRO stock, with the 12-month consensus price target of $80 representing a hefty premium of about 47% to yesterday’s close.
Pessimism is also thick among short sellers. Currently, 14.2 million shares of GPRO stock are sold short, accounting for more than 28% of the stock’s total float, or shares available for public trading. If GPRO stock can rebound from its current levels, potentially driven by positive guidance notes, it could prompt a short-covering rally.
Along those lines, it appears that short sellers are getting a bit nervous. GPRO stock has seen considerable call volume recently, driving the equity’s February/March put/call open interest ratio to a near-term low of 0.73. This ratio dips even further when we zero in on weekly Feb 6 options, plunging to a perch of 0.68.
Click to Enlarge Overall, weekly Feb 6 series implieds are pricing in a potential post-earnings move of about 10.7% for GPRO stock. This places the upper bound at $60.35, while the lower bound lies at $48.65.
An upside move would leave GPRO stock just shy of overhead resistance at its 50-day moving average, while a post-earnings selloff would send GPRO down to within striking distance of its near-term lows.
The current wealth of negativity levied against GPRO set against the stock’s current rebound makes a contrarian play rather tempting heading into earnings — especially with the potential impact of HERO4 sales.
2 Trades for GPRO Stock
Bull Call Spread: Those traders looking to take a chance on a GPRO rally might want to consider a Mar $55/$60 bull call spread. At last check, this spread was offered at $1.79, or $179 per pair of contracts. Breakeven lies at $56.79, while a maximum profit of $3.21, or $321 per pair of contracts, is possible if GPRO stock closes at or above $60 when March options expire.
It should also be noted that it is possible to double you initial outlay on this trade (at $58.58) even if GPRO fails to top the$60 mark, so be sure to set your limit orders accordingly.
Put Sell: Alternately, if you’re not comfortable with a bullish GPRO trade, you could look into a put sell position. For instance, a weekly Feb 6 series $44 put sell stands a good chance of finishing out of the money when these options expire at the end of this week. At last check, the Feb $44 put was bid at 54 cents, or $54 per contract.
On the upside, you keep this premium as long as GPRO stock closes above $44 when February options expire this Friday. On the downside, should GPRO trade below $44 ahead of expiration, you could be assigned 100 shares for each February put sold at a cost of $44 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
