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You Had It Wrong – GoPro Stock Is Not a Growth Story (GPRO)

My gosh, will the misery ever end for GoPro Inc (GPRO) investors? Already down more than 80% from its post-initial public offering peak by the end of last year, Wednesday’s 3% slide has taken GoPro stock to record-low territory, down nearly 85% from its October 2014 peak price with no end in sight.

You Had It Wrong – GoPro Stock Is Not a Growth Story (GPRO)Barclays is getting most of the credit/blame for this week’s batch of bearishness from GPRO: The investment house, though impressed by the company’s virtual reality capabilities, still recently lowered its target price on GoPro stock from $40 to $25.

Even beyond the lowered expectations from Barclays, though, GPRO shares remain more of a liability than an investment-worthy asset.

A One-Hit Wonder?

Calling a spade a spade — not unlike the way Apple (AAPL) created a whole new category of consumer technology called smartphones — GoPro is primarily responsible for the development of the so-called action camera genre.

Unlike Apple, however, GoPro may or may not (and it’s increasingly looking like not) be in a position to remain the pace-setter in the action camera space.

To be fair, it’s still the dominant name in action cameras, boasting roughly 47% of the action camera market as of the middle of last year. A whole slew of competitors unveiled comparable action cameras in the meantime, however, and they’re starting to take a toll.

Even heading into the all-important holiday shopping season the company was warning owners of GPRO stock that sales were slowing; and drastic price cuts in this year’s flagship holiday product — the Hero4 Session — to half of its original price spoke volumes about how little demand for the premium-priced product ended up materializing.

But GoPro is no longer a camera story and instead is becoming a lifestyle story, establishing a venue for users to edit, upload and showcase their filmed activities, with a flying, filming drone due out in just a few months. Moreover, GoPro’s foray into virtual reality cameras has been touted as a potential game changer.

Problem is, while all those products may score high on the “cool” scale, they score very low on the “plausible marketability” scale.

GoPro Needs to Get Real

It’s not uncommon assumption, but just because something would be fun to have doesn’t mean a wide swath of consumers are actually going to pay money to own it or access it. The fact is, while some people are interested in attaching video cameras to their skateboard or their helmet or even their pet, most consumers just don’t care.

There’s nothing wrong with a small market, mind you. Tools and utensils made for left-handed people are a small market. Portable solar panels are a small market. That doesn’t mean there’s no money to be made in portable solar power systems or left-handed tools, though. It’s just that these manufacturers were never under the delusion their products would be a mass-market hit.

GoPro, or at least most owners of GPRO, never seemed to grasp the idea that only a small number of consumers cared to film anything with a movie camera in motion.

And too many believers still don’t see things in a realistic light.

Case in point? Virtual reality. While observers are mixed as to the potential of the upside of new, 360-degree cameras, the fact that the debate is taking place at all suggests there’s a smidgen of hope for GPRO in the virtual arena.

How many $15,000 virtual reality cameras do you think GoPro can actually sell? The lower priced, consumer version will still come with a sticker price of at least $3000 — too rich for the vast majority of consumers and not particularly useful for the consumers who could afford it.

Oh, and by the way, Ricoh (RICOY), Nikon (NINOY) and Kodak have already launched 360-degree cameras at affordable prices, along with several other manufacturers.

Bottom Line for GoPro Stock

None of this is to say GoPro has one foot in the grave or that GoPro stock is en route to becoming a penny stock. It is to say, however, the market built up some serious long-term expectations surrounding GoPro when it shouldn’t have.

Now investors are remedying their exuberance.

The good news is GoPro stock is now valued at a trailing price-earnings of 12.2. Though the forward-looking P/E of 13.11 is based on estimates that may be a bit overly optimistic, they’re not completely out of line.

Investors should be concerned all the same, though, as the more saturated this limited market becomes, the more difficult it will be for GoPro to muster meaningful growth — there’s no meaningful upgrade cycle in the action camera market.

It’s not great growth bet at this point.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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