GoPro (GPRO) stock holders could be forgiven for finding the experience of owning GPRO tantamount to an extreme sport. In fact, during the past few months there has been a wipeout, with GPRO stock going from $64 in early August to $28.27. Ouch!
The travails of GPRO are common for any strong growth stock that is showing signs of deceleration. But it wasn’t long ago when it appeared that the company could do no wrong. As a result, the valuation on GPRO stock reached a level where it was essentially priced for perfection.
Now that the valuation is reined in, perhaps there is an opportunity here. The company does, after all, still have great technology and a stellar brand.
Well, to see if there is potential here, let’s consider three pros and cons on GPRO stock.
GoPro Stock Pros
Great Products and a Powerful Brand: GPRO devices are lightweight, providing professional quality capture at affordable prices. GoPro products seamlessly integrate with mobile devices running software from Apple (AAPL) or Alphabet (GOOG, GOOGL). And yes, GoPro provides various tools to manage, share and edit content, such as GoPro Studio and the GoPro App. For the most part, GoPro has become a top aspirational brand able to command pricing power. Based on research from NPD, the company has three of the top five products in the U.S. camcorder market. GPRO also has significant social media juice. During the third quarter, the number of subscribers on YouTube hit 3.1 million, up 40% on a year-over-year basis, and the user count on Instagram reached 5.8 million, up about 140%.
Growth Opportunities: The GPRO platform could prove useful for moving into various hot growth categories, such as virtual reality. For example, the company recently purchased a startup, called Kolor, which allows for the use of multiple GPRO devices to create a 360-degree experience. Next, GPRO is working aggressively in the drone market. During the first half of 2016, the company expects to launch its Quadcopter, which will allow users to remotely control a drone to capture photos and videos. Finally, GPRO has been investing heavily in developing its own platform for content. Actually, the vision of the company is to essentially become a media operator. To this end, GPRO has put together a team of in-house producers to create premium content and there is a licensing program to for monetization.
Valuation: Given the plunge in GoPro stock, the valuation is certainly much more reasonable. Consider that the forward price-to-earnings multiple is 14, which is cheap compared to Fitbit’s (FIT) steep multiple of 38 times earnings. Besides, if GoPro’s stock languishes for a while, buyout interest could brew. Plenty of large players would see value in GoPro’s brand, technology, content, social media presence and platform. For instance, Microsoft (MSFT), Sony (SNE), Alphabet, Apple and perhaps even Facebook (FB), to name a few.
GoPro Stock Cons
Street Analysts: The analyst community has certainly grown more bearish on GPRO. One notable call came from Morgan Stanley’s (MS) James Faucette, who said that the new Hero4 Session camera — which hit the markets in July — was fairly lackluster and that demand has been soft. In fact, GPRO quickly reduced the price tag on the device by $100. Piper Jaffray analyst Erinn Murphy has also gone negative on GoPro stock because of signs of a slowdown. As a result, she dropped her price target from $54 to $25.
Market Potential: The core market for cameras could ultimately prove to be a niche. Let’s face it, how many people really need a durable camera for active sports? It’s also far from clear how many people want to upgrade to the latest devices, especially if they do not offer many new features, right? In the meantime, the competitive environment is getting more serious. Some of the rivals include Canon (ADR) (CAJ), Nikon (ADR) (NINOY), Olympus Corporation (ADR) (OCPNY), Polaroid, Vivitar Corporation, JVC Kenwood (JVCZF), Panasonic (ADR) (PCRFY), Samsung (SSNLF), Sony, Toshiba Corp. (USA) (TOSYY) and Garmin (GRMN). Although, the wild card is Apple. As seen with its latest phones, the company has been making strides with its camera features. Oh, and Apple recently obtained a patent on certain camera technology.
Upcoming Holiday Season: This is certainly crucial for GPRO. Last year, 45% of all revenues came in Q4, up from 37% in 2013. So even a small slowdown could have a big impact on the top line — and this could mean further risk for GPRO stock. Unfortunately, as seen with the hesitancy from the Federal Reserve to increase interest rates, there are signs that the U.S. economy may be stalling. If so, it’s common for discretionary, high-price items like GPRO devices to get bumped from consumers’ shopping lists.
Bottom Line on GoPro Stock
There are clearly danger signs for GPRO. The competition is definitely real and there is always the possibility of a play from Apple. What’s more, the latest offerings from GPRO indicate that they are no so robust.
But then again, Wall Street has already been discounting such factors into the stock, which now sports a reasonable valuation. There should also be exciting announcements from the company, such as from its efforts with VR and drones.
So should you buy GoPro stock? Yes — for investors looking for a fairly inexpensive way to play trends in wearables, VR and drones, this looks like a good pick.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.