Some may consider the stock a falling knife, but when you grow so fast and the hype and sizzle around your products are so prevalent, it’s only a matter of time before you experience some setbacks. It’s natural.
GoPro’s (GPRO, Financial) stock peaked at $64.74 last August. Yesterday, it closed at $12.48, down more than 80%. But, if you’re a net buyer of stocks and like the industry or company, then this is only good news for you.
In the last five years, the company has grown revenue from $234 million to over $1.6 billion and it’s wildly profitable, earning close to $200 million this year. Founded in 2002 by Nick Woodman, the company has been a darling of Wall Street until the last six months.
The company announced that it expects Q4 sales to come in at $435 million, a 31% year over year decline, and 2015 sales to be $1.6 billion, a 15% year over year increase. Analysts were expecting Q4 sales of $511.9 million and 2015 sales of $1.69 billion, so the updated guidance missed the consensus sharply.
Read: “Over the last year we grew, but in the last quarter we cut prices to drive sales.” Of course, the short positions have plenty of profit in the bank at this point. The float carries 41% short interest, which could be called in anytime.
This stock is not going to zero. The company has more than $500 million in cash with zero debt, and is very profitable. Gross margins are north of 50%. ROE is above 30%. And, while the GoPro product just isn't that unique anymore, people will still be a fan of the brand and the company can continue to grow into new markets.
New products, it’s Karma Drone and Hero 5, could re-energize the customer base and boost sales. The Hero 4 sold about 1,000 cameras an hour during the holiday season in 2014, and the next big upgrade could drive even more. Sure, there’s absolutely no economic moat around the company (unless you consider the fan base), but if they successfully diversify the product line by successfully introducing the Karma this year, the company's stock could be positioned to rebound significantly.
Yes, the stock was hyped by the management, but just looking at video from a POV camera pushes so many hot cognitions in and of itself. Plus, just having the best product doesn't mean you'll sell it. Either you have the only one of its kind, or you market very well. GoPro used to do both, but with more "me-too" products entering the market, it'll have to keep up the marketing push.
GoPro still has 72.5% of the market share in Point-Of-View video cameras market in the U.S. and over 56% globally, with close to 100 million owners. Today, with the ever connected communities of buyers, GoPro may be able to galvanize these owners in the future, but long term, will the company go the way of Kodak? Maybe, but in the short term, the stock under $12 is a bargain.
Disclosure: I have no positions in the stock.
