3 Pros and 3 Cons for Buying GoPro Inc Stock Right Now

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GPRO stock - 3 Pros and 3 Cons for Buying GoPro Inc Stock Right Now

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Everything was starting to go the right way for GoPro Inc (NASDAQ:GPRO). But then the company reported its quarterly results last month. While revenue and earnings both came in ahead of expectations, guidance came up short. So, where do we find ourselves with GPRO stock price?

3 Pros, 3 Cons for Buying GoPro Inc (GPRO) Stock?
Source: GoPro

Let’s look at three pros and cons for this stock:

Fourth-Quarter and Full-Year Revenue

The company expects to register sales of $460 million to $480 million for the holiday fourth quarter. The midpoint ($470 million) is about $51 million short of the $521.2 million consensus. That’s clearly a disappointment for Wall Street.

On the plus side, this would represent about $1.32 billion in total revenue for 2017, an 11% increase from last year. Further, revenue is forecast to grow another 7.5% in 2018, although, after GPRO came up $50 million short for this quarter, maybe we should take that estimate with a grain of sale.

There are a few negatives here, the obvious being that this figure is massively short of what investors were expecting. Further, this comes during the company’s busiest time of the year and actually represents a near-12% decrease from the fourth quarter of 2016. Although 2018 revenue is forecast to grow from 2017, the rate of growth is expected to slow. Not a great thing to hang our hats on given the performance of GPRO stock.

Products

GoPro has a few new toys to add the lineup this year. There’s the Karma drone, the multi-directional Omni camera and the Fusion camera. These all carry big price tags, with the Karma costing $799.99, the Omni costing more than $2,000 and the Fusion ringing the register at $699.99.

These lofty price tags should help boost margins. Further, the improving economy could help encourage sales, as America is feeling more confident. This is a massive trickle-down effect that too many investors continue to underestimate.

While these products may do well to boost margins, the worry is sales volume. How many drones will GoPro really sell near $800 a pop? How much better is the Fusion than one of GoPro’s lower-priced cameras? The Omni is a professional camera, which surely limits the number of buyers.

In regards to the drone, the reviews on Amazon.com, Inc. (NASDAQ:AMZN) are not so hot. Registering just 2.9 stars out of 5 from 147 customer reviews, the Karma pales in comparison to the DJI Mavic Pro. The similarly priced drone ($894 on Amazon) sports a 4.3-star rating with almost 700 customer reviews. Throwing the Karma a bone, its $1,199 setup with the Hero6 camera included currently has a 3.5-star rating from just 20 customer reviews.

Balance Sheet, Income Statement and Cash Flows

Let’s keep it short and sweet.

The pros: GoPro should end the year with roughly $240 million in the bank, up about 25% year-over-year. GPRO should be profitable on an earnings basis for fiscal 2017 and analysts expect that figure to grow sixfold in 2018 (from 6 cents per share to 44 cents per share).

The company generated $47 million in free-cash flow (FCF) last quarter and is on the right path to becoming FCF positive overall.

The cons: After carrying no debt two quarters ago, GoPro now has $127 million in obligations on the books. Although analysts expect a 5-cent-per-share profit this year, management actually expects earnings to be between a 2-cent-per-share loss and an 8-cent-per-share gain. The midpoint of that estimate — a 3-cent-per-share profit — is below the aforementioned consensus view. Finally, while the company was FCF positive last quarter, its trailing 12-month FCF figure still sits at negative $116.5 million.

The Bottom Line on GPRO Stock Price

chart of GPRO stock price
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Source: Chart courtesy of StockCharts.com

The fourth quarter might mark GoPro’s lows. Some investors really hate GoPro. While I do not hate GPRO stock, I have no reason to love it. Management has consistently underwhelmed the Street and its proven to be hit-or-miss in many regards.

While I don’t believe its new products will drive massive gains in revenue, margins or earnings, I do think the business is stabilizing. If GoPro can beat fourth-quarter expectations and provide better-than-expected guidance for fiscal 2018, the stock will really fly.

Don’t bank on a buyout from Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) or Apple Inc. (NASDAQ:AAPL), though. GoPro stock has potential, but management needs to prove it can sustain any momentum it gains.

I like that GPRO stock price is holding above $8 per share, although I would like to see it get above its former support (current possible resistance). This would require a close above $9. Short of that, I would wait for a pullback before going long and keep a tight leash, with a stop-loss just below $8.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.


Article printed from InvestorPlace Media, https://investorplace.com/2017/11/3-pros-3-cons-buying-gopro-gpro-stock/.

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