Morgan Stanley (MS) made headlines today by slashing the price target on GoPro Inc (GPRO) stock from $62 per share to $35 per share. And while the bank didn’t technically downgrade GPRO stock — it maintained its “equal weight” rating — the dramatic slash in the price target is tantamount to a downgrade.
Please, do not heed Morgan Stanley’s horrible advice. GPRO stock is still a long-term buy — and a strong one at that.
Morgan Stanley harps on one fact — that sales of the Hero4 Session, which debuted in July, has been a disappointment — to indict GPRO stock as a whole.
While it’s true the Hero4 Session has underwhelmed, that’s not nearly enough to justify a $27 reduction to its price target.
Fair Point, But Exaggerated PT Reduction
First, it’s worth quickly examining why the investment bank is so lukewarm on GPRO:
“Following up, our most recent checks were decidedly more negative as customers prefer the Silver’s LCD screen and superior video quality over the Session’s smaller form factor. Commentary by management at recent investor events confirm that Session has been a difficult sell at the same price point of its historically favorite HERO4 Silver model. Disappointing demand culminated in GoPro announcing its decision to reduce the price to $299 last week, a $100 discount from the $399 price point when the product was launched in July.”
Okay. So Wall Streeters are essentially saying that GPRO isn’t allowed to release a camera that isn’t an instant hit. I’m sorry, but I don’t accept that thesis.
It’s not like the sun rises and sets with the Hero4 Session. “As goes the Hero4 Session, so go the long-term prospects for GPRO stock,” said no competent investor, ever.
GoPro boasts a large product offering; the entry-level Hero starts at $129, with tiered pricing levels that go all the way up to $499 for the Hero4 Black, aimed at the professional videographer and hardcore action-sports enthusiast.
Morgan Stanley also worries that if GPRO doesn’t come out with more compelling offerings soon, people will increasingly take to using their smartphones in lieu of the company’s products. Which is simply incorrect. Show me the guy who opts to take his Apple (AAPL) iPhone 6s with him in the surf, and I’ll show you someone who doesn’t understand what the concept of waterproofing means.
Apart from the varied product lines GoPro currently has, it’s also turning its focus increasingly to content, where it plans to derive meaningful revenue from its content-licensing platform. GPRO also has ambitious plans to venture into drones and virtual reality, two rapidly growing verticals with enormous growth potential.
So, have no doubt about it: GPRO is still an all-out growth stock. Yet it’s currently valued at less than 14 times earnings, meaning it’s not priced like one.
While I’d prefer to have more trenchant analysis from professional analysts and research firms, I’m thankful for one thing: Their shortsightedness is creating a remarkable buying opportunity for the individual investor.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
