GoPro Inc. (GPRO) has simply been obliterated lately, flopping 40% in the last month to rest about 65% under its 52-week high reached last October. While the GoPro IPO was a big hit, GRPO stock is now basically flat with where it first traded on the open market back in July 2014.
Of course, the initial pricing of GPRO was $24 a share, and the extreme sports camera maker is still up nicely from there.
Furthermore, GoPro now trades at a very reasonable forward price-to-earnings ratio of 17.5 or so after this decline — all while enjoying revenue and profit growth that are both at a 30% clip this year.
So is GPRO stock a bargain here given its strong fundamentals and bargain valuation? Or will the bears continue to rule in GoPro for some time based on sentiment alone?
I think it’s the former.
GRPO Stock Has Strong Growth Potential
Let’s start by acknowledging that the market hasn’t been super hospitable to momentum stocks lately. As Wall Street has started to go “risk off” in the last several weeks, hot stocks such as semiconductor darling Ambarella Inc. (AMBA) and fitness-wearable icon FitBit (FIT) have taken it on the chin.
It’s natural in environments like these for fast-moving stocks to lurch downward on a change in investor attitudes. Thus, the real question is how much of the declines were driven by panic selling or short sellers.
Click to EnlargeIf you look at the short-interest history in GPRO stock, you’ll see that the shorts have actually already made their bets to the downside, with August short interest down big time from the spring where short interest regularly topped 18 million shares.
Thus, it’s safe to assume that the biggest bears have already made their money. That’s good in one respect, since GoPro stock may not be the most obvious downside play on Wall Street … but the lack of short interest also means a lack of short squeeze potential to send GRPO higher in short order.
Of course, the tech stock may not need a burst from a short squeeze to move significantly higher in the coming months. When you look at the fundamentals, GoPro has everything a growth investor wants right now: four straight earnings beats (all by a significant margin) and rapid expansion on both the top and the bottom line.
Consider that revenue should grow 39% in the current fiscal year, and another 20% next year. Furthermore, earnings will grow 37% this year and 15% in FY2016.
All for a forward P/E that is 17.5 — in line with the S&P 500’s forward P/E of 16.5, and well under the tech-heavy Nasdaq’s 21.6 forward earnings multiple? Sign me up.
There will assuredly be fireworks in GPRO stock going forward, but the fact that short interest has declined and the stock is much more fairly valued should provide a great opportunity for traders here.
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@example.com or follow him on Twitter via @JeffReevesIP.
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