Despite a successful initial public offering for GPRO stock in mid-2014, with shares of the high-tech camera company racing up to almost $90 a share, GoPro Inc has been in a tailspin for the last year.
GoPro stock now trades in the mid-$20 range, down a gut-wrenching 70% from its 52-week highs.
And given the steady drumbeat of negative sentiment coupled with abysmal third-quarter numbers, investors may want to think seriously about whether GPRO stock will ever recover.
GoPro Stock Has Nowhere to Go
GoPro earnings details show a profitability company, but one that missed expectations by a long shot. GPRO saw earnings per share of just 25 cents vs. forecasts of 29 cents, and revenue of $400 million vs. forecast of $434 million.
This kind of one-two punch with a miss on both the top and bottom line is never a good sign, but is particularly concerning for GPRO stock.
That’s because the GoPro IPO was pitched to investors on the notion that this wasn’t just a hardware stock but a media company, with the potential to build out an ad-supported network where extreme sports enthusiasts would come and share videos of skydiving, BMX runs and more.
Those high hopes led to unrealistic expectations, and the company’s brief run after IPO peaked with GoPro stock boasting a forward price-to-earnings ratio of almost 100.
We all know what has happened since then.
When you look at GoPro stock in the cold light of day, it’s easy to see why the crash has happened. GoPro failed to deliver any material progress toward becoming a media business, and at the same time smartphones are getting better and better at competing with GPRO devices.
The iPhone from Apple (AAPL) has a whole marketing campaign around the quality of its photos and videos, with the tag of “shot on iPhone 6” showcasing the range and quality of its devices. There’s also a high-end 41-megapixel smartphone (yes, that’s “forty-one”) from Microsoft (MSFT) partner Nokia (NOK) for those who want professional-grade resolution in their pocket.
Add an accessory to safely mount these phones on a helmet or on a surfboard and you’ve got everything GoPro has to offer in addition to the power of a conventional smartphone.
Bulls will point out that despite a dip in revenue from the Americas, GoPro stock saw international growth nearly triple to almost $210 million — which actually puts overseas sales ahead of its domestic segment now. That, coupled with expanding gross margins, is reason to think GPRO stock can come back.
Furthermore, some analysts predict softness in Q3 is simply because of consumers waiting to unload in what should be a powerful holiday sales season.
Bottom Line on GPRO Stock
But even if GoPro can fix some of its sales problems, it will have to keep pace with competition and overcome the very bleak investor sentiment out there. It’s quite common for an overhyped IPO to fall sharply after the bloom is off the rose, but it’s much more rare for a company to reattain its previous highs in short order.
Investors tempted to bargain hunt after GoPro earnings would do well to remember this. Even though GPRO stock has a much more reasonable forward price-to-earnings of about 13 right now, the recent history of trouble shows investors have good reasons to discount any future growth.
After all, one way a low P/E ratio resolves is for share prices to move higher … while the other involves continued earnings misses and underperformance.
GoPro may be in the latter camp for some time.
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.