But while the performance from GoPro stock has been quite nice lately, investors shouldn’t think they missed the boat. Volatility is sure to be the norm as this company continues to face a slightly elevated valuation, but there is a lot to like in GoPro.
While much of that optimism is priced in after earnings, growth will continue — and so will this rally in GPRO stock.
Pros and Cons of GPRO Stock
For starters, let’s not confuse GoPro products with GPRO stock. The camera-maker clearly has a big following, particularly among the extreme sports crowd, and it’s undeniable that watching a stuntman ride a dirt bike up the side of a bridge is pretty cool.
But this is about a stock, and how to make money on a momentum trade.
That momentum hasn’t always been grand. Back in 2014, GoPro touted its media potential with big aims at video and advertising, and had simply run up way too much. I panned the stock just as it began to crash from $85 or so down to $37 in a few months.
I could never get on board with the big hope of media and advertising potential at GoPro. Web videos offer notoriously low margins and the tough competition of “infinite supply” in the Internet age. And if you think YouTube and its parent Google (GOOG, GOOGL) will just cede this turf, you’re sadly mistaken.
I’ll admit, however, that GPRO stock is at least holding its own on this front.
Consider that the GoPro mobile app was downloaded 2.5 million times in this quarter alone — proving people aren’t just using GPRO hardware, but also its software and video platforms after the film is shot. That’s a big win, and proves GoPro isn’t exactly a ship adrift in its media mission … at least not yet.
Back to core metrics, North American sales remain robust and overseas sales are also a big growth area, with sales in Europe, the Middle East and Africa more than doubling and sales in greater Asia Pacific roughly tripling year-over-year.
There are risks, of course. The camera company already does over $2.3 billion in revenue on what amounts to a pretty niche product. There are ways to expand the appeal of GoPro cameras by getting cheaper, but that could weigh on margins.
Fortunately, that’s not happening right now as margins expanded briskly year-over-year in the most recent quarter, with gross margins rising from 42.1% to 46.3%.
Finally, GoPro offered robust Q3 guidance of 29 cents to 32 cents a share, above the 22 cents predicted by Wall Street.
No wonder analysts are categorically bullish. Take a look at recent upgrades after earnings:
- Barclays: Reiterated “overweight” rating on GoPro stock, price target raised to $71 from $65
- Dougherty & Co.: Reiterated “buy” rating on GoPro stock, price target raised to $70 from $65
- Piper Jaffray: Reiterated “overweight” rating on GoPro stock, price target raised to $72 from $68
- Northland Capital: Reiterated “outperform” rating on GoPro stock, price target raised to $80 from $76
I’ll admit, I don’t like some of the non-GAAP fuzzy math here and I remain skeptical about media potential. But significant momentum in share price, margins, revenue and earnings growth is hard to complain about.
Buy GPRO stock here with confidence.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at [email protected] or follow him on Twitter via @JeffReevesIP.