Here’s Why GPRO Stock is Undervalued
Although GoPro Inc. (NASDAQ:GPRO) shares have taken enormous hits in recent years, the action camera maker is set for a huge comeback. GoPro stock gained huge popularity ahead of its 2014 IPO, before falling dramatically over the past 12 months. Now several factors suggest GPRO stock could soar.
The company manufactures point-of-view cameras that can be strapped to a helmet, surfboard, bike, or just about anything else. Adrenaline junkies all across the world lined up to buy the low-priced cameras. Soon afterwards, YouTube was overrun by videos of daredevil antics.
The flood of viral clips helped GPRO build a stunningly innovative media campaign.
GoPro’s team would scour the internet looking for inspirational content filmed using their cameras. Sometimes they’d even sponsor the creation of videos meant to capture people’s hearts and minds. It worked wonders for GoPro stockholders.
Case in point; does anyone remember The Lion Whisperer? In November 2013 the internet came to a standstill over a mini-documentary featuring a man named Kevin Richardson.
The video shows Richardson driving into the African savannah to play with a pride of lions. But unlike past wildlife videos, we saw the action from his perspective.
Richardson wore a head-mounted GoPro as 400 pound lions padded out of a thicket to greet him. When the lions stand on their two hind legs to hug him, we see it through his eyes. There’s a power to first person visuals that made GoPro a household name.
Investors Fell Out of Love With GoPro Stock
Videos like “The Lion Whisperer” brought GoPro a ton of attention. The company repeatedly brushed off rumors off an initial public offering, raising significant cash in private placements.
The denials only succeeded in raising the GoPro IPO price to $24.00 per share. The shares premiered on June 26, 2014 as NASDAQ:GPRO and immediately started climbing. Between June and October 2014, GPRO stock gained over 290% to peak at $93.85. (Source: GoPro website, last accessed September 24, 2015.)
Chart courtesy of www.StockCharts.com
That kind of optimism is emblematic of a post-IPO fever. Investors like narratives; they like to believe in business fairytales. And GoPro was their latest obsession. It didn’t take much to shatter their illusions.
GPRO stock fell 14% soon after GoPro founders Nick and Jill Woodman donated 5.8 million shares to their charitable foundation. One could argue the price-earnings ratio of 67 was a tad high, but it’s since dropped to 30.
Investors came to regret their excessive enthusiasm as short-sellers stacked up against GoPro. I understand the reasoning. A few recent events have made me reconsider GPRO stock. I now firmly believe the company is grossly undervalued.
GoPro Steps into Virtual Reality
First off, the company is immensely profitable. In fact, GoPro has generated $35.0 million of income in the last quarter alone, up from a $20.0 million loss in the same period last year.
Moreover, the company’s international expansion bodes well for GPRO stockholders. Revenues from Asia-Pacific and from the EMEA region (Europe, Middle East, Africa) rose 105% and 183%, respectively. (Source: GoPro 10-Q SEC Filing, July 22, 2015.)
Geographic expansion will continue to fatten GoPro’s bottom line, but the company still needs to remain innovative. Luckily, those bases are well covered.
GoPro is at the forefront of the virtual reality market. On September 8th, the company unveiled a 360 degree camera dubbed, “Odyssey.” The $15,000 camera is designed with immersive content in mind, having signed deals with both Google Inc. and Facebook Inc.
Here’s the kicker: you don’t even need the virtual reality headsets to view GoPro’s 360-degree content. Starting this week, Facebook is releasing exclusive GoPro content that allows the user to scroll on the video, enabling them to view content from whichever perspective they like. (Source: GoPro Press Release, September 23, 2015.)
The dawn of “spherical content” will revolutionize entertainment, especially once VR headsets go mainstream. And as content producers rush to fill the demand for 360-degree content, GoPro will be cashing checks.
Taking all this into account, there’s only one explanation for a volatile GPRO stock. I call it the “pendulum effect.” Investors got too bullish after the IPO, swinging the share price to excessive heights before swinging back in the opposite direction. Like a pendulum.
Ultimately, the weight of GoPro (its fundamentals) will stabilize the stock. With income growing at a rapid pace, and new partnerships with Google and Facebook, GPRO shares could hit $50.00, $60.00, or even $75.00.