GPRO Stock Is Misunderstood
It seems like the entire market has turned against GoPro Inc (NASDAQ:GPRO). You’d think I was exaggerating, but when GPRO stock lost more than 74% in six months, the truth became pretty obvious: the company had an image problem.
To investors—and the world at large, really—GoPro is nothing more than a maker of action cameras. Its brand is tied to YouTube videos like the one of adrenaline junkies leaping off a cliff in nothing but wingsuits. The product is associated with daredevils.
GoPro-funded content gives us a window into those experiences, but it hasn’t proven a strong enough pitch to keep the company alive. Last quarter, GPRO stock revenue fell by 31%. The economy is partly to blame, but there are other reasons for the downturn, too.
Think about it: how many adrenaline junkies are there in the world? My guess (along with almost every other analyst) is not that many. GoPro can’t rely on that audience to keep driving its growth.
But the good news is that it isn’t.
The company has been investing enormous amounts of money into research and development. It has also forged partnerships that could widen GoPro’s appeal.
Don’t believe me? Here are three very simple reasons to be bullish on GPRO stock.
3 Reasons to Be Bullish on GoPro
When I say GoPro is suffering from an image problem, I mean it is the victim of a bad narrative on Wall Street. It is the “little engine that couldn’t,” a promising startup that failed to deliver on expectations. If their story arc bends up even a little, we could see a huge resurgence in the stock price.
- More than 33% of GoPro’s outstanding shares are sold short right now. That means investors borrowed GPRO stock and sold it in the hope it might drop even further. When they buy back the shares at a lower price, they keep the spread.
But that’s only if the share price falls. Let’s say the opposite occurs. The price shoots up and short sellers start getting nervous. In a rush to cover their positions, they trip over each other to buy GPRO stock. That’s called a short squeeze.
The higher the amount of short interest, the more likely we’ll see a short squeeze. So I take it as a very good sign that so many people are shorting GoPro.
- Considering how competitive the market is getting, I really like GoPro’s increased attention on both marketing and research and development. If the company had left those budgets the same as last year, its bottom line would have grown by almost 57%. (Source: “GoPro Announces Fourth Quarter and Full Year 2015 Results,” GoPro Investor Relations, February 3, 2016.)
Seeing more profits would have pacified shareholders, but it would have left the company uncompetitive in the long run. Instead, it invested in its future and profits shrank 72%. (Source: Ibid.)
- And lastly, GoPro is a manufacturer. Unlike Facebook Inc. or Alphabet Inc, this company makes a physical product you can touch and carry. By those standards, it is enormously undervalued. GoPro’s total market value is only 2.2 times its book value, compared to 9.7X a year ago. That seems arbitrary to me. (Source: Ibid.)
Besides those three reasons, GoPro has a number of cool directions in which to move. It is unleashing its first drone and moving aggressively into the nascent virtual reality market. All told, it seems obvious that GPRO stock could rise.