It has been more than a week since GoPro Inc (NASDAQ:GPRO) bombed with its quarterly earnings, sales and forecast and GoPro stock still hasn’t stabilized. That suggests even more short-term downside is ahead.
As we noted when GPRO delivered its disappointing news in early November, the technical picture was actually starting to look up.
About two months ago, shares in GoPro made a successful test of support at their 200-day moving average and carved out a golden cross.
True, GPRO stock failed a test of support at the 50-day moving average a month later, but the 200-day line remained firm. GoPro stock bounced off the key level just days before it blew it on the earnings front.
Cut to today and there’s not much hope in this chart for any kind of reversal in short order. The relative strength index suggests a change of course is imminent, but don’t forget that stocks can stay oversold for a lot longer than anyone expects. That’s especially true when the market is trying to adjust to surprising deterioration in the fundamentals.
GPRO would have to fall another 15% or so to hit its 52-week low. Maybe it can find support there, but why would it? What’s the catalyst after such disappointing earnings? With perhaps the exception of the RSI, all the price momentum is to the downside at this point.
Thomson Reuters Stock Reports gives GPRO stock a price momentum rating of 3. That’s well below the S&P 500 index average rating of 5.2. Shares are more than 50% below their 52-week high. The stock isn’t going to be challenging any key technical levels any time soon. The GoPro stock price is about 27% below its 50-day moving average and 17% under its 200-day moving average.
GPRO Stock Is Down on Fundamental Weakness
Even if GPRO stock stabilizes soon, any upside is going to remain speculative at this point. The business has deteriorated to the point that it’s reasonable to question GoPro’s ability to exist as an independent company.
Analysts were cautious about GPRO’s most recent three-month period and still managed to be disappointed. The low bar they set didn’t help at all.
The company logged its fourth consecutive quarter of losses and missed Wall Street estimates in four of the last five earnings periods. As for the top line, revenue missed analysts’ average projection for the second time in the previous four quarters.
For the third quarter, GoPro stock was hit by a net loss of $104 million, or 74 cents per share, from year-ago profits of $19 million, or 13 cents per share. On an adjusted basis, the loss came to 60 cents a share, which was far wider than the Street’s estimate for a loss of 34 cents, according to a poll by Thomson Reuters.
Revenue retreated 40% to $241 million from $400 million in the same quarter of 2015. Analysts’ average estimate pegged revenue at $319 million.
That’s a big bottom and top-line miss for GPRO stock, but what the market really cares about is guidance and that surprised to the downside too.
It now anticipates full-year revenue of $1.25 billion to $1.3 billion. That’s down from previous guidance of $1.35 to $1.5 billion. Wall Street was looking for the top line to hit $1.39 billion this year.
It has been clear that GoPro stock was a dog for some time. The simple fact that it has no competitive moat — it makes cameras and drones — was always an existential weakness. Now it’s also becoming clear that the market for such products is a niche one too.
The fundamentals are weak with no catalysts on the horizon and the technicals offer no hope right now either. There are better stock picks than GPRO stock.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
