GPRO: Should You Buy GoPro?

GoPro, Inc. (GPRO) develops and sells devices, such as cameras, premium wearable accessories, and mounts comprising equipment-based mounts. It has a wide range of products including 360-degree waterproof cameras. The company provides a cloud-based storage solution along with desktop and smartphone editing applications.

GPRO is one of the best performing stocks in 2020, with record revenue and income growth. In the third quarter that ended September 2020, revenue increased 109% sequentially to $280.5 million. Digital sales achieved a record $81 million in revenue, growing 37% sequentially. EPS for the quarter came in at $0.02, compared to the year-ago loss of $0.51 per share.

With the robust growth in its subscriber base, the stock gained 52.5% year-to-date. This impressive performance and potential upside based on a number of factors has helped it earn a “Buy” rating in our proprietary ratings system.

Here is how our proprietary POWR Ratings system evaluates GPRO:

Trade Grade: A

GPRO is currently trading higher than its 50-day and 200-day moving averages of $5.24 and $4.33, respectively, indicating that the stock is in an uptrend. In fact, the stock’s 34% return over the past three months reflects solid short-term bullishness.

GPRO ended the last reported quarter with 501,000 paid subscribers, growing its GoPro Plus customer base 35% sequentially and 65% year-over-year. The global launch of company’s new HERO9 Black witnessed strong consumer demand with subscription sign ups soaring better than expected. Consequently, management anticipates its subscriber base to reach 600,000 to 700,000 by the end of year.

Buy & Hold Grade: C

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, GPRO is fairly positioned. The stock is currently trading 8% below its 52-week high of $7.20.

GPRO has been operating in a single segment and its revenues are primarily tied exclusively to adventure cameras, plus related gear and services. Online sales represented nearly 10% of the total revenues reported for the fiscal year 2019, which grew 28% in the last reported quarter. GPRO now expects nearly 100% of its camera sales to come through its website, rather than via in-store sales.

However, the company has historically run into issues of production delays. GPRO witnessed a shortage of its camera in the last holiday season sale. The company also had to delay shipments of its HERO9 Black back in October 2019, and then encountered supply chain disruptions during the pandemic.

Peer Grade: B

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GPRO is currently rated #9 out of 30 stocks in the Technology – Hardware industry. Other popular stocks in the group are Canon, Inc. (CAJ), Garmin Ltd. (GRMN), and Plantronics, Inc. (PLT). CAJ and PLT have lost 35% and 6.7%, respectively, year-to-date. GRMN, on the other hand, returned 18.5% over this period.

Industry Rank: B

GPRO is part of the StockNews.com Technology – Hardware industry, which is ranked #48 out of the 123 industries. The companies in this industry manufacture PCs, cameras, smart phones, and related accessories. The profitability of individual companies depends on technological innovation, anticipating customer requirements, and delivering consistent product quality. Since the onset of the pandemic, the industry has witnessed an accelerated demand due to the work-and-learn trend that caused more people to engage in such products.

Overall POWR Rating: B (Buy)

Overall, GPRO is rated a “Buy” due to its continued top-line growth, direct-to-consumer strategy, evolving business model, and short-and-long-term bullishness, as determined by the four components of our overall POWR Rating.

Bottom Line

GPRO has soared so far this year and recovered admirably from the September tech sell-off. The company is benefiting from the subscription-centric strategy, and looking forward to the upcoming holiday season. Sales growth may further accelerate into 2021 as more people go on adventures after the pandemic eases.

However, GPRO is also running the outright risk of going out of business if the demand for action cameras falls because the company is failing to expand its product line to add more value to consumers.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is pretty impressive for GPRO. Analysts expect revenues for the fourth quarter ending December 2020 to grow 78.8% year-over-year. The consensus EPS estimate for the ongoing quarter indicates a 114.3% rise from the year-ago value. This outlook should keep GPRO’s price momentum alive in the near term.

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GPRO shares were trading at $7.71 per share on Friday afternoon, up $1.09 (+16.47%). Year-to-date, GPRO has gained 77.65%, versus a 10.50% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More…

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