Since its IPO in June of 2014, GoPro (GPRO) has gyrated between $35 and $95 a share. Investor expectations of long-term growth have also varied greatly during this time. Varied expectations have simultaneously allowed the stock to trade at nearly 85x earnings, while also having almost 15% of all shares sold short.
How can investors make sense of this and should you be long or short?
The Business
GoPro is the #1 camera/camcorder brand by market share in the U.S. The top five camera/camcorders in the U.S. by sales are all GoPros.
The company aims to take control of the entire content capture value chain. To accomplish this, it has created a diverse line of capture devices, rolled out their own editing software, and has created partnerships with some of the world’s leading content publishing brands such as YouTube, Facebook (FB) and ESPN.
GoPro’s products are sold in roughly 25,000 outlets in over 100 countries. The company’s companion GoPro app has also received over 16 million downloads since its release.
Growth Opportunities
GoPro has already achieved massive growth targets since its founding. In just five years, the company has gone from shipping 400k units to 5.2 million, helping push revenues above $1 billion.
The company has consistently rolled out new models to meet rising and increasingly varied demand. It launched its first HD camera in 2009 and since then it has introduced HERO2 camera in 2011; HERO3 in 2012; HERO3+ in 2013; and, HERO4 in 2014.
GoPro also recently unveiled its easy-to-use touchscreen camera, HERO+LCD. While the model will hit GoPro authorized stores in the U.S. on June 6, its international availability will start from July 12. Reasonably priced at $300, HERO+LCD with its numerous features should see a favorable response from the market.
The company is also increasingly focusing on international sales through its distribution channels, helping continue rapid sales growth. Its latest results showed strong sales growth in international markets. Revenue from Europe, Middle East and Africa segment climbed to $139.1 million in the fiscal first quarter from $84.1 million, year-over-year. Revenue from Asia-Pacific region rose to $43.9 million up from $26.4 million, year-over-year.
On average, Wall Street analysts expect the company to grow EPS by almost 30% annually over the next five years.
The company is constantly beating earnings estimates, and analysts are continually bumping up their EPS projections to keep up.
Ownership
After a flurry of post-IPO insider selling, the management team now only owns a fraction of the company.
While shares are still held by various Guru’s, both Joel Greenblatt (Trades, Portfolio) and Chase Coleman (Trades, Portfolio) have liquidated their positions recently.
Valuation
Analysts are expecting earnings to come in this year at $1.66 a share. Using that as a base in GuruFocus’ DCF Tool, we can estimate that the stock is roughly fairly valued if Wall Street growth expectations are correct.
This DCF calculation has the company’s rapid growth phase ending after five years however. Should it continue this pace over a ten-year period, shares would be dramatically undervalued.
Conclusion
While the company’s multiple valuation looks fairly high at this point (P/E of 85x), GoPro is growing fast enough to justify this valuation. If you believe that the company can continue growing quickly for at least another five years, shares look attractive.
For more ideas like this one, check out GuruFocus’ High Short Interest Screen or the rest of R. Vanzo’s Articles.
