The GoPro Inc (GPRO) stock price has been absolutely demolished recently. Down 60% in just the last three months, shares of the wearable-camera maker have been hit by lackluster demand for its newest product, the ice-cube-sized Hero4 Session.
That’s the bad news.
The good news is that the selloff has created a sizable opportunity, and one analyst in particular thinks GPRO stock could currently be trading at a 55% discount to its fair value.
Are GoPro Shares Worth $39?
Gus Richards of Northland Securities came out with a note on Monday reiterating his $39 price target and “outperform” rating on GPRO stock. At Friday’s closing price of $25.13, that represents more than a 55% premium.
While the weak demand for the newest member of the GPRO family — the Hero4 Session — is concerning, by no means is it the end of the world. The company has since lowered the price of the model from $399 to $299, so that should move more inventory in and of itself.
On top of that, GPRO also plans to get into the drone market early next year, and has talked openly about its ambitions in virtual reality. With plans to start licensing its compelling and unique content, something it currently gives away for free online, action cameras are only the beginning of GoPro’s story.
Still, it’s all investors have to go on right now, so GPRO stock will justifiably be priced according to how well those cameras sell. With that in mind, it’s important to understand why sales suffered in the most recent quarter. (“Suffered” is a relative term; GPRO revenue was up 43% year-over-year in Q3.)
Who better to ask than Nick Woodman himself, GoPro’s founder and CEO? As he explained in a recent CNBC interview,
“Admittedly, we took our foot off the gas from a marketing perspective in the second and third quarter. We had a huge halo effect last year from the IPO.”
He went on to explain that the “halo effect” from the GPRO IPO helped boost sales last year, making for tougher comparables and even carrying over some latent demand into Q1. The company was “slow to realize” that it needed to ramp up marketing spend in Q1 and Q2 in order to juice results.
Bottom Line
While it’s easy to understand that slashed guidance and a woeful quarter don’t exactly inspire confidence on Wall Street, investors have been known to overreact to major news (both good and bad).
GPRO stock’s recent selloff certainly seems to be an exaggerated move, and it doesn’t seem like a company that’s expanding into high-growth areas like virtual reality and drones should be priced at a forward price-to-earnings ratio of 17, in line with the broader market.
I don’t pretend to know the exact price GPRO should be trading at, but one thing’s for sure: It looks like an absolute steal at current levels.
As of this writing, John Divine had no interests in any of the stocks mentioned. You can follow him on Twitter at@divinebizkid or email him at editor@investorplace.com.
