GoPro Stock Price Could Be About to Rebound
It’s no secret that GoPro, Inc. (NASDAQ:GPRO) is in a tough situation at the moment, as the GoPro stock price has absolutely plummeted by an astounding 75% in the last year of trading. Even worse, GPRO stock has fallen in value by more than 60% in the last three months alone.
This turn of events would ordinarily be viewed as a catastrophe, leading one to believe that the near-collapse of the company’s stock price means it’s time to jump ship. If you’re thinking this, you couldn’t be further from the truth and here’s why.
GoPro Stock: An Ironically Good Pick
Many analysts and investors might be surprised to know that GoPro is, in fact, a well-performing company with huge upside growth potential. The company also has an ambitious strategy to expand on many fronts and has displayed excellent financial management.
Don’t believe me? Well, then consider the following…
GoPro holds approximately $513 million in liquid cash and short-term investments on its balance sheet, which equates to $3.73 per share.
“Big deal,” you’re probably sarcastically saying, as this is not a huge fortune for a tech company of any regard. Would it surprise you then to find out that GoPro has no debt? That’s right. This company that’s worth approximately $2.76 billion has more than half a billion dollars in cash reserves; that’s what I call a solid financial footing.
Now that we’ve established it’s not financial issues or a lack of liquidity that is causing the ongoing slump in the GPRO stock price, it’s time to figure out what the real problem is.
It certainly is not growth, because GoPro is a highly profitable company with solid revenue levels. In fact, GoPro recorded phenomenal revenue growth of 43% in the third quarter of 2015 and earnings growth in the range of 108%. If that isn’t a healthy financial performance, then I don’t know what is.
It doesn’t take an MBA to figure out that financial problems aren’t what are causing the GoPro stock price to tank. So what is?
GoPro Stock Price: Short Selling, Bad Analyses, “Missed” Growth
There are three basic reasons for the spectacular collapse of the GPRO stock price since last year. While GoPro is a fine tech company that has run into a series of issues, some of these issues are outside of the company’s control or are even just plain wrong.
Firstly, you first have to consider the massive volumes of GPRO stock short-selling that has been taking place and the disastrous effects this has had on the stock’s movement. By the end of July, 9.4 million shares of GoPro were being short-sold. It was only three months later that this figure increased threefold, hitting 33 million shares. (Source: “Why Is GoPro Inc (GPRO) Stock Oversold and Underloved?” Investor Place, November 19, 2015.)
Short selling is essentially the practice of placing a bet on the value of a given stock going down and then profiting on having guessed correctly, buying it back at a lower price. When this happens in large volumes, it drives down a stock’s value like you wouldn’t believe.
Bascially, the company’s stock price was going down because investors bet on it going down because the stock was going down. See the problem? The company’s stock was caught in a recursive loop and the high volume of traders putting negative downward pressure on the company’s shares caused the price to nosedive.
Secondly, analysts decided to jump on the negativity bandwagon, quickly pronouncing the company’s stock price a dud, predicting its failure and tossing it into the dustbin of tech history. Comparisons were quickly made between GoPro and Blackberry. Both Morgan Stanley and Piper Jaffray were sounding the bearish alarms before GoPro had even released its (quite favorable) third-quarter financial results. (Source: “MORGAN STANLEY: GoPro’s new tiny camera is a flop — we’re hacking our price target,” Business Insider, October 7, 2015.)
Which brings me to my third and final reason for which GoPro stock has tanked. When the company released its third-quarter report, GPRO shares tumbled by 13% in one day. “But wait,” you’re saying, “didn’t GoPro release good financial results?”
Chart courtesy of www.StockCharts.com
Yes, it did. The issue that Wall Street analysts took with a positive report was that it simply wasn’t good enough. The problem was that GoPro, while performing more than well, simply did not live up to unrealistic expectations. While company revenue soared by 43% to $400.3 million year-over-year, the company didn’t meet the expectations of $433.6 million in revenue. (Source: “GoPro Stock Plunges On Disappointing Q3 Results,” Forbes, October 28, 2015.)
If you think this is odd logic, you’re not alone. While GoPro reported a massive surge in revenue growth, it still was devalued on the basis of underachievement.
But it gets even weirder when the company reported earnings per share of $0.25, up from $0.12 a year earlier. (Source: “Q3 2015 Preliminary Earnings Results Summary,” GoPro, Inc. web site, last accessed November 19, 2015.) For a company that more than doubled its earnings per share, GoPro’s fast-plunging stock price hides the reality of a solid performance.
The Bottom Line on GPRO Stock
There very well could be light at the end of this tunnel, because GoPro’s stock price may skyrocket soon and here’s why: the holiday shopping season is just about to kick off and you can bet the farm that GoPro’s cameras will be one of the hottest items on everyone’s list this year. With the company’s emphasis on marketing, this is certainly no stretch of the imagination. A wise investor will find it a prudent move to take a second look at GoPro, because this company’s stock shows a lot of potential for 2016.