GoPRO (GPRO): Price doesn’t reflect bottom-line
By Tyler Laundon, Chief Analyst, Cabot Small-Cap Confidential
From Cabot Wealth Advisory 10/12/15 Sign up for Cabot Wealth Advisory—it’s free!
GoPRO (GPRO) hit a post-IPO low last week after falling more than 50% from its August high.
I’m not a dedicated GoPro advocate, and I haven’t yet coughed up the cash for one of their cameras. But I find the stock compelling, despite that fact that I’m not fully convinced the company will fend off all the competitive threats out there, be able to innovate quickly enough to continue to grow its user base, or scale its media business.
I like GoPro for what it is now: a highly specialized device manufacturer that absolutely dominates in its niche product category. And I think that off that base, there’s a lot of future growth potential.
GoPro’s best days don’t seem behind it, and the brand seems as powerful as ever. It is showing up in bigger and bigger markets, getting called up from extreme sports to the big leagues, and making cameos on Hollywood movie sets. It is also expanding content distribution through partners that include Hulu and Comcast (CMCSA).
But what catches my attention most is the company’s pace of growth. Annual revenue growth in 2013 and 2014 was 87% and 41%, respectively. EPS growth was 115% and 138%, respectively, and gross profit margin expanded from 37% to 45%.
GoPro is on pace to grow revenue by 38% this year, to nearly $2 billion, and to grow EPS by 32% to $1.74. That is, of course, if consensus estimates are accurate, which they have not been. Over the past four quarters, the company has beaten estimates by an average of 40%, suggesting that even though the stock pops or drops on analyst rating changes, such ratings may not be worth paying much attention to.
The valuation of the stock seems to suggest a pretty sizeable disconnect with the company’s bottom-line results too. At the current price of just over 29, shares of GoPro trade with a forward PE of just 14, and a PEG ratio of 0.5. The price-to-sales ratio is a meager 2.2.
I look at those numbers and think that even if competition does increase, even if the company’s new small form-factor Session camera—its smallest and lightest yet—is a flop, and even if most people don’t want a GoPro stuck to their head, the stock is still attractive.
With the company making progress shrinking the form factor and introducing its own drone next year, I think there’s ample room for sales growth. And that doesn’t include what it could do if they can figure out how to make the cameras attractive to all the parents (like me) and grandparents who just want to capture everyday moments.
I don’t know if GoPro will go up from here. If it does, I don’t know if the ride will last weeks, months, years or generations. But I think it’s worth taking that first step and buying a little. Just like the action in front of the camera’s lens, the stock tends toward the extreme, and this selloff looks overdone. Earnings will be announced on October 28, and there should be a good deal of interest in the stock up to and through that event.
I’m always watching and waiting for that next wave of opportunity to appear in small-cap stocks. And I recommend my best ideas to Cabot Small-Cap Confidential subscribers every month. These readers are enjoying a pretty nice ride on my latest selection, which is up 15% since we jumped onboard October 2. With a little luck, the ride will continue.
By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 12/29/14 Sign up for Cabot Wealth Advisory—it’s free!
GoPro (GPRO) is a California company that makes and sells digital video cameras that can be mounted on anything, including cars, motorcycles, surfboards, drones, helmets, small children and animals.
Lots of them were under Christmas trees last week.
Here’s what I like about this company and why I think it will lead the revolution.
A few decades ago, the leading companies in the photography business were Kodak, which had virtually created the industry, and Polaroid.
Then digital photography came along and the old giants failed to adapt. They were too busy protecting their legacy products. Before long, Canon and Nikon ruled the business, while Olympus, Panasonic, Pentax, Samsung, Sony and Minolta all played catch-up.
And now history is repeating itself, as GoPro has singlehandedly created this new video photography category, and leads its competitors by miles!
GoPro had revenues of $234 million in 2011, $526 million in 2012 and $986 million in 2013. It has number one name recognition, backed by expert execution and marketing.
And it has yet to penetrate foreign markets deeply, as 57% of its revenues come from the Americas.
Analysts are projecting that the company will grow earnings 87% this year and 23% next year, but I think management, which has proven extremely far-sighted and capable, will surprise with some major strategic move—perhaps into the drone business.
So the story is top notch, but what about the chart?
GPRO was very hot this summer, coming public at 24 in June, jumping to 50 by July and then pulling back below 40 in early August.
That’s when I named it my favorite stock at the Cabot Investors Conference. (Maybe you’ll come next year? Click here for details)
It zoomed to 98 in early October, and since then, profit-taking has dominated, as the stock cooled off. It’s a natural cycle, entirely normal.
The stock got as low as 55 two weeks ago, but buyers stepped in last week and I’m optimistic the next leg will be up, not least because of the positive economic news that low oil prices have left more money for consumers to spend on gadgets like GoPro cameras.
Also, sometime in January, we’ll learn how many cameras were actually placed under Christmas trees for the holidays.
But even better than a $400 camera might be six shares of GPRO stock!
It that makes sense to you, feel free to take the plunge here. Just note that I may not mention GPRO again.
If you want regular updates on the stocks you own, it’s better to become a reader of one of our expert advisories. And if you want the most growth-oriented of all, you want our flagship Cabot Market Letter, which has been advising investors how to make money (and not lose it) since 1970!
By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 10/20/14 Sign up for Cabot Wealth Advisory—it’s free!
If I mention the name GoPro (GPRO), you probably know what I’m talking about. Or at least your brain refers to an image of what you think I’m talking about.
But when I mention Frontline (FRO) you probably don’t. (I picked the stock at random, specifically for its lack of public visibility).
So when an editor at The Wall Street Journal or The New York Times or Google or Yahoo is deciding what stories to feature, what’s he going to go with, GoPro or Frontline? The answer is obvious. He’s going to give the people what they want.
Which is why my computer news screen shows me headlines like “Michael Schumacher’s Brain Injury Caused By Helmet-Mounted GoPro,” and not stories about Frontline’s crude oil shipping business.
The headline with two high-profile names is going to get clicks. And the Frontline headline is going to be ignored.
So what does this have to do with investing?
Well, people have evolved to be social animals. They feel more comfortable when others around them are doing the same thing, whether it’s cheering for a football team or drinking Pabst Blue Ribbon or chai lattes.
And when people invest, the same social instincts factor into their decisions. We feel more comfortable, more confident, if someone we respect also owns—or recommends—the same stock.
Which is one reason why a lot of investors piled into GoPro stock this year. They were the cool people at the party. They were excited about the future. And best of all, they were making money.
The GoPro party (symbolized by its stock’s ascent) was one of the very last ones still going on while the stock market slowly crumbled in September.
But as any celebrity will tell you, being famous is a double-edged sword. And when the going gets rough, and all those fair-weather partiers disappear, the media are only too happy to highlight the (alleged) darker side of the celebrity.
Thus the headlines about Formula One driver Michael Schumacher, who was wearing a GoPro-mounted helmet when he fell on some rocks while skiing last winter. (Obviously, his family can’t sue the rocks, and ski areas and helmet-makers have learned to immunize themselves against lawsuits, but with GoPro factored into the mix, I can almost hear the lawyers calculating.) The story gets clicks, and that’s what advertisers are watching these days.
Contrarily, if a Frontline tanker captain got drunk and fell off his ship, you’d probably never know about it. No celebrity, no notoriety, and no big money. If there was a story, who’d click on it?
Bottom line: the Internet is just a new player in the herding game.
But it hasn’t changed the way the game is played. When you invest in growth stocks, growing popularity on the way up is wonderful—and you wish the party would last forever.
And when the party ends, bad news sells even faster than good news. Winds blow hard on high hills. Which is why the Schumacher/GoPro story, first reported in February (!) is now getting traction. Could there be more negative GoPro stories ahead? Of course.
If you’re an investor in GPRO, you have a choice. You either dig in for the long haul and wait for the storm to pass (doing this requires a solid profit combined with a strong conviction that the company will weather the storm and come out stronger.)
Or you cash in your chips and wait for the next party to start, quite possibly somewhere else.
Note: GPRO was featured in last week’s issue of Cabot Top Ten Trader. For more information, click here.
From Cabot Wealth Advisory 9/26/14 Sign up for Cabot Wealth Advisory—it’s free!
What intrigues me is that for all the hype surrounding Alibaba, there have been other big-story, big-numbers IPOs that formed bases and lifted off in recent weeks with considerably less fanfare. My favorite is GoPro (GPRO), which excites me because it’s effectively created an entirely new industry—action cameras and videos. Here’s what I wrote about the company in Cabot Top Ten Trader on September 8:
“GoPro is king of the wearable action camera. The company manufactures small, lightweight and extremely durable high-definition cameras that allow consumers to easily record their adventuring escapades and then just as easily post and share those videos and pictures online. GoPro’s flagship products include the HD Hero and the Hero 3+, which can download footage into GoPro Studio, the company’s desktop video editing application. The company also offers remote controls and integration with mobile devices via its GoPro App. Although the company’s most recent quarterly report raised a few eyebrows, analysts expect GoPro to have a big holiday season, and this is what’s behind the strength in GPRO shares, with analysts at Dougherty telling clients that “GoPro has established itself as one of the most valuable brands in consumer technology and has significant headroom to grow.” For instance, during the 2013 holiday season, GoPro was sold in roughly 3,000 locations. Now, the company’s cameras have shelf space at nearly every sporting goods and electronics retailer location! Lastly, the company is expected to realize significant growth overseas, a market which GoPro is only beginning to tap into.”
The chart looks strikingly similar to some of the IPO base examples above—GPRO priced below 25 and soared to 50 after four days. Then it paused for seven weeks, though admittedly the range was wider than normal (25% or so). But given the huge run-up right after coming public, such a dip looked normal on the chart. GPRO exploded to new highs in late August and remains in great shape today despite the shaky overall market environment.
That shaky environment is the only reason I haven’t bought in yet—I’m still seeing lots of “late-stage” evidence in the market that tells me risk is rising here, even as the Dow and S&P 500 are near their peaks. (The broad market is very weak, with five times as many stocks hitting new 52-week lows than highs, even on Wednesday’s rally!)
Still, GPRO is a name worth watching; I wouldn’t chase it up here, but another consolidation of two or three weeks, or possibly a dip back to or below 70, would be tempting to nibble.
If you’d like to receive more updates on GPRO and receive an additional 10 momentum stocks each week, take a risk-free subscription to Cabot Top Ten Trader. This year, we grabbed many double and triple-digit winners, including 303% gains in VipShop Holdings, 126% gains in Canadian Solar, 133% gains in Netflix, and we see many more strong stocks that are ready to break out. Click here for more information.
3000 Clearview Way
San Mateo, California 94402
|Index Membership: N/A
Sector: Consumer Goods
Industry: Photographic Equipment & Supplies
Full Time Employees: 646
12/29/14: A new video photography category
10/20/14: The cool people at the party
9/26/14: Entirely new industry