GoPro (GPRO) rallied Monday after it received a vote of confidence from a Wall Street analyst, but it will take a lot more than that to make GRPO worth holding for the longer term.
Wedbush analyst Michael Pachter slashed his price target on GPRO stock to $50 from $76 per share, but the market shrugged that off.
What really mattered to investors and traders in the beaten-down stock was that Pachter stood his ground in other areas. The analyst reaffirmed his rating of “outperform” (buy, essentially), and said the recent selloff in GPRO stock is overdone.
True, GPRO reports quarterly results on Oct. 28 and there are a couple things that potentially spring-load shares for blastoff if the camera-maker can beat Wall Street estimates.
For one, the stock has indeed been beaten down. GPRO has lost more than half its value so far this year. (It’s down 70% from its all-time high hit a little more than year ago.)
The higher a stock flies, the harder it falls in a drawdown. But that works in the opposite direction, as well. Which is why GoPro responded so strongly in early trading.
Furthermore, GPRO is infested with short sellers. As of the end of September, nearly 30% of the float was sold short. That creates the possibility of a short squeeze if GPRO surprises the Street to the upside.
Enjoy GPRO Rally While It Lasts
It’s cute that the market is celebrating Wedbush’s vote of confidence, but maybe it also bemoaned a big downgrade last week. Indeed, GRPO stock hit an all-time intraday low on Oct. 14 after a Piper Jaffray cut its rating from “buy” to “neutral” (hold) and slashed its price target from $54 to $25.
The thrust of analyst Erinn Murphy’s argument is that GRPO should get a price-to-earnings multiple on par with other pedestrian consumer electronics stocks. After all, the hot growth period is over. Surveys show weakening demand — especially among teens — heading into the holiday selling season.
Additionally, GPRO isn’t innovating properly and is feeling price pressure from competition.
Of course the big knock on GoPro stock remains its lack of a moat of any kind. Shock- and water-resistant camera technology isn’t a competitive advantage. Lots of — much bigger — companies can do it, too.
Being first to market guarantees nothing. See Alphabet’s Google (GOOGL), Facebook (FB) or Apple (AAPL). None of the companies invented their current areas of dominance. Even superior quality can’t promise success. Just ask the Sony (SNE) Betamax.
As we’ve noted before, GoPro stock could be good for a trade. If that’s your thing, join the party. Just be forewarned that GRPO is a plaything for professional traders, putting the normals at a severe disadvantage.
But for long-term bet, GoPro stock is doomed. It’s a camera manufacturer. How is that business — price pressure and all — going to be worth substantially more in three to five years than it is today?
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
