GoPro Inc (GPRO) stock has been, euphemistically speaking, an underwhelming performer recently. Shares are already down 39% this year, which is barely a month old. In the last year, GPRO stock has lost almost twice that: It’s taken a 75% haircut during that period.
That’s the bad news. Admittedly, it’s pretty lousy. The good news? The worst has come and gone.
GoPro stock has almost certainly bottomed, and although I’d like to see some progress show up in the numbers before snapping up shares, I think cautious buys at today’s levels will be amply rewarded over the long term.
GPRO: Negative Sentiment Built In
Let’s make this abundantly clear: GoPro stock is not popular and momentum is not in its favor. Why would it be? Fourth-quarter earnings were even more miserable than people thought, and first-quarter guidance was in the gutter. Management expects revenue to fall about 50% year-over-year in the current quarter.
So why buy the stock?
Precisely because negative sentiment is so strongly built in. Yes, barring a miracle, GPRO will post another horrendous quarter in Q1. But we already know that, and the markets have already punished shares for that very transgression.
Let’s not forget that there are some positives on the horizon: The company expects full-year 2016 revenue to fall 12%, which when you factor in the miserable forecast for Q1, means Nick Woodman & Co. are expecting sales to rebounds sharply in the latter half of the year.
Sparking that rebound will be a series of new product launches, including the company’s Karma quadcopter, and finally, the newest iteration of its wearable camera line — the “connected and convenient” Hero5. You’d expect the company to price both these releases a little more carefully than they did the Hero4 Session, which they eventually had to put on sale for $199, half its original $399 price tag.
GoPro is also finally starting to focus more intently on creating a seamless content management system, something that should bring the company one step closer to realizing its goal to monetize its unique user-generated videos. The company just reached a patent license agreement with Microsoft (MSFT) yesterday that relates to file storage. It’s unclear precisely what this will address, but it’s clear content is becoming more and more of a priority.
While GoPro stock is less than a week away from hitting all-time lows last week, the $9.01 level is the lowest we’ll ever be seeing GPRO from here on out. Shares would have to fall another 18% from current prices to test those levels again, and considering its current valuation, suffering a decline that steep would be unlikely.
Shares currently trade at price-earnings growth ratio of 0.85, which according to legendary growth investor Peter Lynch, is indicative of a highly discounted stock. Whenever the PEG ratio is below 1, a stock is a buy; and in today’s market (even after the recent downturn), that’s hard to find.
I generally don’t like to buy stocks just because I don’t see things getting worse, but like I said: Once this comeback story starts playing out in the numbers, shares should rebound sharply. Sub-$9? Not happening.
As of this writing, John Divine held none of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at email@example.com.
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