GoPro (GPRO) cameras may have the ability to fly high in the sky, but GoPro stock has mostly stayed grounded since going public in June 2014.
Things started well for GPRO — quite well. The stock debuted at $31 and tripled in its first three months of trading.
Then, in October 2014, the bottom fell out: GPRO stock plummeted all the way back to $37 this March, fought its way back to $64 in August … and then fell off a cliff again during the August and September market collapse. It hasn’t recovered.
Last week GPRO hit a new low below $17.
So what happened?
GPRO Losing Its Sizzle
For starters, the company is sort of a one-hit wonder. It makes a camera that one can affix to their head while doing any sort of extreme activity — skiing, rock-climbing, skydiving, etc. But it doesn’t really have any other groundbreaking products.
The excitement over the GoPro camera carried the stock through its IPO and first few months on the market … then investors got bored. “What else you got?” Wall Street collectively asked.
That’s the only plausible explanation why GoPro stock has fallen so far, so fast. Lack of growth isn’t the reason, at least not at first glance. Sales have grown at least 38% in each of the last six quarters, and earnings per share were up 29% last quarter.
However, a deeper look inside those numbers reveals that GPRO fell short of analyst expectations in both top- and bottom-line growth. Profit margins also slipped. And while per-share earnings improved last quarter, they’re on track for an 11% decline in 2015 and are projected to go up by a mere penny next year.
The company also cut the price of its Hero4 Session camera to help boost holiday sales, which may work but doesn’t exactly show a ton of confidence in one of its signature products.
The only way for GoPro stock to regain traction with investors, it seems, is to come out with something truly new. GoPro is a company built on a technology intended to wow customers — and now investors. When that wow factor disappears, the growth had better be extraordinary to fully recapture Wall Street’s attention. And with thinning margins and declining earnings growth, GPRO stock can’t get by on solid sales growth alone — especially if those sales are aided by lower prices.
And from a purely technical standpoint, it’s hard to reverse a chart that looks like this:
No Turnaround for GoPro Stock in 2016
As you can see, GoPro stock hasn’t traded above its 50-day (or 200-day) moving average since August. It has yet to find a true support level, which means this still may not be the bottom. Buying based on the chart would be nothing more than a speculative value play.
And while the price-to-earnings ratio of 15 isn’t a deal-breaker for value investors, GPRO certainly isn’t undervalued considering that 2016 earnings are forecast to be roughly in line with this year’s.
For all those reasons, I don’t think 2016 will be much better than 2015 for GPRO stock.
Barring the introduction of some jaw-dropping new camera or gadget, GPRO isn’t likely to take flight anytime soon.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
