Shares of GoPro (GPRO) closed at $31.33, up more than 30% from their IPO price of $24. Thursday was the first day of trading for the maker of HD high-action cameras. The company may be a darling of Wall Street but is the stock a good bet for average investors?
Jeff Reeves of InvestorPlace.com tells The Daily Ticker why he thinks GoPro is a risky investment for the average Joe. While he thinks IPOs are risky investments in general for individual investors, he does point out some red flags for GoPro in particular. He says the company's S1 revealed that revenue and net income dropped signficantly in the last quarter and revenue growth continues to outpace profits (sales are up 87% but gross profit is up less than 60%).
Looking at the company's fundamentals, it has a number of positives. It's making money, and we have seen plenty of tech companies going public that have yet to turn a profit. It's also built a strong brand with strong growth (+87% in 2013) and close to $1 billion in revenue, despite some competition.
Reeves says while he recognizes it's a "legit company," he says valuation is key and right now he can't trust that, worrying that some mom and pop investors are "just buying the narrative."
GoPro videos have received 500 million views on YouTube, and part of the company's strategy is to build a media platform and start collecting ad revenue. If they do so in a very compelling way, would that change Reeves' mind? Check out the video to find out.
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