Action camera manufacturer GoPro (GPRO, Financial) has turned into one of the most hated stocks on Wall Street as approximately 21 million shares of the company's stock have been sold short. That accounts for around 28% of GoPro’s publicly traded float, which is a substantial bet signifying many Wall Street experts are expecting additional pain in the future.
In 2015, shorting GoPro’s stock has been gainful as shares of the company shed around 70% of their value in the reference period. The reason behind this massive drop is the combination of poor financial results during the prior few quarters and bland guidance for 2016.
In the recent quarter, top line declined by around 31% equated to the year-ago period, a consequence of an inadequate holiday quarter. That rushed GoPro into the red for the period, resulting in a $41 million operating loss.
The company’s management assumes the pain will continue, as it is projecting revenue in the range of $160 million to $180 million for the current quarter, which would be equal to a drop of almost 47% at the midpoint from the $363 million it detailed in the first quarter of fiscal year 2015.
DJI’s Phantom 4
At the start of March, drone king DJI's director of strategic partnerships shared that most of the company’s clients by this time use Apple’s (AAPL, Financial) products to capture, edit and control drone footage.
DJI is about to launch its new amazing product – Phantom 4, through which iOS users can choose an on-screen object they want to track, and the Phantom 4 will automatically follow it with protective measures such as avoiding obstacles. Furthermore, Apple and DJI sell premium smartphones and drones so the regular DJI drone purchaser is probably keen to purchase an up-to-date iPhone and vice versa.
It does not mean that GoPro lacks equivalent benefits. Apple also retails GoPro’s action cameras at its outlets as well as online stores, though with less noticeable displays. A client who purchase costly iPhones or DJI’s drones might also be ready to buy a $500 GoPro action camera. However, if GoPro’s Karma failed to meet public expectations or is not a really innovative product, it is doubtful that Apple will offer the same floor space to Karma as that of DJI’s Phantom 4.
Conclusion
GoPro may have been turned into one of the most hated stocks, but the risk/reward ratio is not favorable for shorting the stock. Having been beaten down over the last 12 months, GoPro doesn't necessarily have much downside left. However, due to the growing competition, going on the long side of the trade won't make much sense either. Investors should watch from the sidelines.
