GoPro, Inc. Could Be My Favorite Stock in 2016
As a fan of GoPro, Inc. (NASDAW:GPRO), it hurts me to see investors dragging GoPro stock through the mud. The conventional wisdom has turned incredibly bearish on GPRO stock, meaning I once again find myself in the contrarian camp.
It’s good that I like moving against the crowd, especially when it relates to assets like GoPro stock. One of the principal rules of investing is “buy low, sell high” or in other words, act on unpopular opinions. Opportunity in the market smells a lot like fear.
The Bullish Case for GoPro Stock
Unfortunately, the investing mantra is easier to say than to follow. The rout on GPRO stock proves that people feel safer moving with the crowd than against it, but by listening to the bears, investors are choosing to undervalue it stock.
The truth is that GoPro has a bright future. The company’s earnings dropped significantly from last year, causing investors to lose faith in GPRO stock. After a rocky start to the first half of the year, shares rebounded during the summer before the stock took a nosedive in August, decimating the company’s market value.
GoPro stock is currently down more than 63% from the start of 2015.
Chart courtesy of www.StockCharts.com
There are plenty of factors weighing on GPRO stock. From expensive legal hassles to sluggish sales, GoPro has underperformed this past year and that’s translated directly to their stock. Investors don’t believe they can put out all the fires in time.
For instance, the release of a GoPro camera this year went south after its design was compared to the “Polaroid Cube” camera. The designs are eerily similar, featuring curved edges and a round button on top. The maker of Polaroid’s camera, C&A Marketing, sued GoPro for all of the profits from the camera.
Obviously, this weighed on GPRO stock, but it was magnified by the weak sales or more specifically, sales were weak according to Wall Street estimates. GoPro stock actually delivered pre-tax earnings that were 105.4% higher than the same quarter last year. (Source: “GoPro Inc. Form 10-Q Filing,” Securities & Exchange Commission, October 29, 2015.)
This is one of the main reasons I’m still bullish on GPRO stock. We’re not talking about an Internet business circa 1999; this is a hardware manufacturer that is turning a healthy profit. The company is profitable. I don’t know how else to put it.
Moreover, GoPro has partnerships that many analysts are discounting. For instance, I wonder why the relationship between GoPro and Facebook, Inc. hasn’t done much to move the stock.
360-Degree Videos Are Great News for GoPro Stock
In the last few months, GoPro released something called 360-degree videos. This type of content allows users to change the perspective of the video by simply scrolling. The 360-degree videos premiered on Facebook, mainly because they were designed for the Oculus Rift headset that Facebook is launching in 2016. (Source: “GoPro Odyssey VR camera will cost $15,000, arrive in November,” Mashable, September 8, 2015.)
Oculus Rift is a virtual reality (VR) headset that will compete directlywith the Xbox One and PlayStation 4.” By creating an immersive environment, Facebook’s Oculus Rift will completely change how we watch movies, play video games, and even handle our basic computing.
This revolutionary technology will also boost the value of GoPro stock. In order to film content for virtual reality software, content makers need updated hardware. GoPro has already released the “Odyssey,” which captures 360-degree visuals and is priced around $15,000.
Here’s the Bottom Line on GPRO Stock
GPRO stock was down in the month following the release of its 360-degree content in concert with Facebook. Considering that GoPro is tied to the popular social media and leader in VR technology, I have high hopes for GoPro stock. Right now, the most important thing to do is ignore the bears and be willing to have an unpopular opinion on GPRO stock.