Should You Buy the Dip in GoPro?

The action camera maker GoPro, Inc. (GPRO) has gained 17.8% over the past three months  driven primarily by holiday sales and subscriber growth. However, the stock has lost nearly 29% since hitting its 52-week high of $11.19 on February 2. The company’s disappointing financial results for the fourth quarter (ended December 31, 2021) drove the stock price down further.

GPRO’s shift to a more subscription-centric consumer-direct model and to a greater focus on digital technology are expected to support its future growth.

However, smartphone cameras developed by several other companies are getting better each day. So, it remains to be seen if GPRO’s market dominance in its niche market is sufficient to ward off competitors and allow GPRO to gain in the coming months.

Here’s what I think could shape GPRO’s performance in the near term:

Consistent Product Updates

Last month, the company’s GoPro Labs special firmware program released an update that unlocks innovative and experimental features for advanced users. It supports  GPRO’s HERO9 Black, HERO8 Black, HERO7 Black and GoPro MAX. Among other updates, it enables  users to leverage the camera's accelerometer and/or gyroscope to start/stop capture only when the camera is in motion, preserving storage space and battery life.

The company  announced a new firmware update for its HERO9 Black flagship camera in December. The update makes the camera compatible with the company's new ruggedized, waterproof, Bluetooth called  the Remote, which was also launched on the same day.

Inexpensive Valuation

In terms of non-GAAP forward price/earnings, the stock is trading at 13.44x, 29.4% lower than the industry average  19.04x. GPRO’s forward enterprise value/sales of 1.06x is also lower than the industry average  1.63x. Moreover, in terms of forward enterprise value/EBITDA, the stock’s 8.65x is 36.6% lower than the industry average  13.65x.

Weakness in Recent Financials

GPRO’s revenue for the fourth quarter, ended December 31, 2020, decreased 32.3% year-over-year to $357.77 million. Its  gross profit was  $136.08 million for the same quarter, down 32.6% year-over-year. Its net income also decreased 53.6% year-over-year to $44.41 million, and its non-GAAP EPS decreased 44.3% year-over-year to $0.39.

Our POWR Ratings Don’t Indicate Enough Upside

GPRO has an overall rating of C, which equates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. Among  these categories, GPRO has a grade of C for Growth. This is consistent with analyst expectations that revenue and EPS will increase but at a modest rate.

We have graded the stock for Momentum, Stability, Sentiment, Value and Quality also. Click here to get all GPRO’s ratings.

Out of 29 stocks in the B-rated Technology – Hardware industry, GPRO is ranked #12.

Better than GPRO: There are 10 top rated stocks in the same industry. Click here to access them.

Bottom Line

GPRO’s increasing focus on a subscription-based consumer-direct business model is expected to help it  gain in the coming months. But the company is still heavily reliant on its higher priced camera sales. In fact, cameras with retail prices above $300 represented 91% of the company’s fourth quarter (ended December 31, 2020) revenues. With increasing competition, it remains to be seen if the company can  improve its financials by relying only on its dominance in its niche action camera market.

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GPRO shares were trading at $7.69 per share on Thursday afternoon, down $0.25 (-3.15%). Year-to-date, GPRO has declined -7.13%, versus a 2.85% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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