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Bull of The Day: GoPro (GPRO)

Daniel Laboe

GoPro (GPRO) has been on a tear since the start of the year, up 62% since January 2nd. 10 days ago, EPS results beat estimates by over 20%, and revenue was up 20% from the same quarter last year. Gross margins have also grown an astounding 1090 basis points year-over-year illustrating remarkable improvements in operational efficiency. GPRO is up 15% since this earnings release and I think there could be much more upside potential as sell-side analysts continuing to raise estimates of the future earnings of the firm, propelling GPRO into a Zacks Rank #2 (Buy).

GoPro is down 91% from its hay day at the end of 2014. GoPro’s sales peaked in 2015 with total profits hitting their high in 2014. The company has recently begun to pick up steam again as they lean up their portfolio, cutting unprofitable segments, and focusing all their energy on the core moneymakers.

GoPro is expected to post a positive bottom-line for the first time since 2015 as leaning operations cut margins and the top line expands with GoPro’s renewed focus on core product lines. This year’s EPS growth is expected to be 265% with over 22% growth expected in the subsequently year. Sales are also expected to grow 10% year-over-year in 2019.

GoPro sells a wide variety of cameras and camera equipment. They attract an active and adventurous consumer, with a lot of these cameras being used in action sports videos and to record travel ventures. GoPro has also caught the attention of drone enthusiast who can use GoPro’s 360-view camera to capture footage of landscapes, action sports or even help realtors create house preview material. They previously sold a drone themselves called the Karma but discontinued it due to the low margins and extreme competition within the industry.

Currently, GoPro is in control of 97% of the action camera market share (by dollars). GoPro’s three HERO7 cameras were the top-three best selling action cameras last year, according to NPD Group. To better understand GoPro’s HERO7 camera I took the firms description of the product from their most recent 10K. “HERO7 is our cloud-connected line of durable, waterproof cameras launched in the Fall of 2018, featuring image stabilization, telemetry, cloud connectivity and voice control.”

Valuation

GoPro is trading at very competitive multiples, effectively mirroring the industry, trading at 18.58x full year P/E, which is low for a firm that is toeing the line of profitability. They are trading at a price to sales of 0.87x, which has fallen significantly since its high above 8.8x at the end of 2014 and is on the lower side of the industry.

This firm continues to gain moment, but Investors may be more apprehensive about putting a position on a stock that is down over 90% from its highs. Investors are scared to get burned again, but if GoPro’s optimistic outlook comes to fruition, GPRO should see some serious growth.

 

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