Investors looking for bargains as tech stocks struggle to recover from the September selloff have an interesting choice in GoPro (NASDAQ:GPRO). Unlike many tech peers, GPRO stock has not only bounced back from its September rout, it’s in face at year-long highs.
The company is still engineering a comeback from its 2014/2015 heyday. GPRO stock has improved to a ‘B’ rating in Portfolio Grader, but it’s not without risk. Buying at 2020 highs may be the wrong move — especially when GoPro shares have often slumped after holiday sales.
One take is that it’s too late to snap up GPRO on the cheap. On the other hand, the company is going into the holidays on a strong footing. And with no reported shortages of its new HERO9 Black camera and less reliance on third party retailers, this could be a year GoPro where delivers on its holiday quarter potential.
In that case, there will still be upside for GPRO stock, despite currently being at a 2020 high.
Growing Subscriber Count Boosts GPRO Stock
GoPro has been one of the most interesting tech stock outliers over the past month and a half. At the start of September, nervous investors sold off tech stocks, resulting in broad losses for the sector. Many tech stocks have begun rebounding, but have yet to recover to August levels.
GPRO stock was caught up in that slump. However, unlike most tech stocks, GPRO shares have not just recovered, they’ve blown past their August levels to hit a 2020 high.
The catalyst for GoPro was an announcement on October 6 that the company’s new HERO9 Black camera was seeing high demand. In addition, buyers on its website were bundling the camera with paid GoPro subscriptions at a higher rate than anticipated. This pushed the Paid GoPro subscriber count ($49.99 annually or $4.99 a month) past 500,000. CEO Nicholas Woodman wrote:
“Thanks to a stellar global launch of HERO9 Black, our paid GoPro subscriber count is ahead of where we expected to be at this time and bodes well for us to exceed our previously-stated target of 600,000 to 700,000 paid subscribers by year-end.”
GPRO stock spiked 29% in a single day on this news.
The Risk of Lower-Than-Expected Sales
Of course, even though GoPro has pulled off a fairly convincing turnaround, it is still vulnerable. In particular, it’s concerning that the company’s fortunes are tied exclusively to a public appetite for adventure cameras plus related gear and services.
Any company that is focused on a single segment like this knows there is risk. GoPro itself attempted an ill-fated expansion into drones in order to diversify. If the demand for action cameras should fall, GoPro will find its recovery quickly derailed. The pandemic is significantly cutting into recreational travel and while that hasn’t dampened demand for action cameras yet, the possibility that it could is something to be aware of. The addition of paid subscriptions to the mix helps somewhat, but it is still tied directly to the action cameras.
Another pandemic-related risk to consider before an investment in GPRO stock is the resulting recession. We appear to have escaped a depression at this point, but we are in a recession — and it could be an extensive one. When people lose their jobs, discretionary spending falls. And few things are as “discretionary” as buying a new action camera. Especially a premium model like a GoPro.
Dodging the Production Delay Bullet
Another risk that GoPro always faces is production delays. The company has historically run into issues here. Last October, GPRO stock dropped 16% in after hours trading after the company lowered guidance due to production delays with the HERO8 Black camera.
With the pandemic, the usual production challenges that GoPro has encountered in the past were made worse by the potential for supply chain disruption. In May, there was speculation that the HERO9 Black might be delayed or worse because of the pandemic. Fortunately for the company, that has not turned out to be the case. Unlike in 2019, GoPro appears to be going into the critical holiday shopping season without shortages of its latest camera.
Another difference? With a focus on selling through its own website in 2020, GoPro is reducing its reliance on third party retailers. That move may also pay off once holiday shopping kicks off, especially if consumers are reluctant to shop in stores.
Bottom Line on GPRO Stock
GPRO stock has performed very well in 2020, posting a gain of 57% so far this year. It recovered admirably from the September tech stock selloff. The question is, what will it do once fourth quarter and full year results are announced next February?
Will it be like this February, when fourth quarter of 2019 and full year 2019 numbers missed expectations, sinking GPRO stock? Or will GoPro have a breakout quarter of holiday sales? With signs pointing toward GoPro having a happy holiday, GPRO may still be a buy at this point — but keep in mind the pandemic wild card that could still play spoiler.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.