GoPro Inc (NASDAQ:GPRO) is flying higher following its latest corporate confession. But should bullish investors that are still on the sidelines jump into GPRO stock at this point? Today, I’ll take a look at GoPro on and off the charts for the latest evidence, then offer up an opinion about whether you should start a position, and how.
Just when it appeared that GoPro was terminally grounded, the once-popular wearable-camera wunderkind pulled off an impressive earnings beat. And suddenly, the stock was worth another peek.
On Thursday night, GoPro topped Q2 analyst earnings forecasts with a 9-cent loss, which was much narrower than Wall Street’s views for a 25-cent deficit. Cost-cutting measures played a definite role, but recovering sales also helped. Revenues aren’t where they were in their 2015 heyday, but sales beat expectations and grew year-over-year.
The earnings confessional also noted “strong demand” for GoPro products, showed growing international sales interest and demonstrated a marked reduction in inventory market supplies. Those are all positive signs of a turnaround.
Regarding the Karma Drone: GoPro management acknowledged revenues were below forecasts, but the recent move into the drone market was strong enough to put the Karma into second place in U.S. sales for the second quarter.
CEO Nick Woodman, known for an enthusiastic vision which hasn’t always panned out, nonetheless did make a point of celebrating GoPro’s new editing software for its cameras and symbiotic relationship with the smartphone market as being ‘a game changer able to tap into the mega-trend of sharing.’
In the immediate aftermath of earnings and in early trade Friday, GPRO stock is soaring higher by about 15%. A short squeeze (28% of the float was sold short before earnings) is likely helping. However, enthusiastic investors appear to be digesting GoPro’s results as an overall positive step toward a potentially more meaningful trend.
GoPro’s Chart
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For those currently on the sidelines, the question is whether Friday’s initial clearance has what it takes to be a more productive trend. That’s similar to the question fundamental investors are asking themselves.
One could argue today’s breakout in GPRO stock also offers the hope of a higher high. In conjunction with an existing higher low, that’s a building block for a potential uptrend.
I think caution is warranted here, however.
Ultimately, there’s a lot of room within Friday’s price gap that could be filled without failing the price pattern.
My two cents? GoPro still is a highly speculative play. But if you think a turnaround is possible, play it safe using the options market, where you can define and minimize risk.
How to Trade GPRO Stock
Unsurprisingly, premiums in GoPro’s options have come in Friday, but calls and puts do still trade fairly high relative to GPRO’s volatility. That shouldn’t be a huge surprise. Shares have been moving sideways (albeit in a bumpy manner) for all of 2017.
If you want to position for upside, buy an out-of-the-money call. With GPRO changing hands at $9.52, the Oct $11 call for up to 30 cents is one such opportunity.
Risk is defined to roughly 3.5% of an outright purchase, so if Friday’s reaction turns tail, you’re fully protected with only a small, manageable ding to your trading account. That’s a nice insurance policy to have.
Lastly, by using October, the out-of-the-money call provides sufficient time without holding out too much hope. If a bullish trend is to be confirmed, the position could be very profitable should 2017’s high of $11.10 break.
Investment accounts under Christopher Tyler’s management do not currently own positions in any stocks or derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
