GPRO Stock Could Be on Verge of Short Squeeze
There is no other way to say it: GoPro, Inc.’s (NASDAQ: GPRO) stock performance has been terrible. Since its peak above $90.00 a share reached last October, the GPRO stock price has plunged by more than 75%! What’s interesting, however, is that as a company, GoPro’s performance has been more than solid. Its decent financials and strong growth prospects make GPRO a value stock in today’s market.
GoPro Stock: A Solid Pick
For GoPro stock, the drop in its share price reflects more of a change in sentiment rather than fundamentals. A look at the company’s financials would tell you that it is doing more than fine. In the most recent quarter, revenue totaled $400.3 million, 43% higher compared to the same period last year. Moreover, growth has been consistent. In the first three quarters of 2015, year-over-year growth in revenue was reported at 54.0%, 71.7%, and 43.0%, respectively. (Source: “GoPro Announces Third Quarter 2015 Results,” GoPro, Inc., October 28, 2015.)
Growth in the company’s top-line numbers also managed to trickle down to the bottom line. In the third quarter, adjusted net income came in at $0.25 a share, a 108.3% year-over-year improvement.
It’s not that hard to understand GoPro’s success: the company is good at what it does, which is making high-quality, durable cameras. In the U.S., GoPro accounted for five of the top 10 products in the combined digital camera and camcorder category in the third quarter of 2015. The brand is also a leader in accessory unit sales, with seven of the top 10 selling accessories.
So if the camera company is doing just fine, why did its stock price drop so much? Well, first of all, expectations might have been too high. Despite the solid results from the third-quarter earnings report, both revenue and earnings per share (EPS) fell short of expectations. As a result, the company’s stock price plunged 16% in afterhours trading.
Chart courtesy of www.StockCharts.com
GPRO stock’s terrible performance was also helped by a massive increase in short interest. By the end of October 2015, short interest on GoPro stood at 33.3 million shares, more than four-times the 8.2 million in short interest a year ago.
Going forward, how about virtual reality and drones? That’s the avenue GoPro plans to take. The company is creating a six-camera spherical array to capture images and video needed to create 360-degree virtual reality (VR) images. It’s also planning to enter the drone business with a quadcopter scheduled to be released in the first half of 2016.
The Bottom Line on GPRO Stock
Trading at $20.01 a share today, GoPro has a price-to-earnings (P/E) ratio of 16.42, which is much lower compared to the industry’s average P/E of 20.82. Moreover, the company is not just standing still; it’s actually growing at a double-digit pace, which makes it that much more valuable at this price point.
Those who are shorting GoPro will eventually have to cover their positions. This means buying GPRO shares, which will give upward pressure to the stock’s price. The question is when this will happen. If sentiment starts to change for the company as the holiday shopping season begins, those who are shorting the stock may want to cover their positions quickly, meaning the upward momentum might start sooner than you think.