Still-Pricey GoPro Shares Could Go Even Lower
As its action cameras face stiffer competition, the company’s growth prospects are getting dimmer.
Pity any company that falls under Apple’s shadow, even a fast-growing name like GoPro. Last week, shares of the action-camera company tumbled 22%, on news that Apple had secured new patents related to wearable cameras.
The importance of the patents is anyone’s guess, but the impact on GoPro shares (ticker: GPRO) couldn’t be more clear: The highflying stock is vulnerable to all forms of competition.
GoPro pioneered the lucrative market for action cameras, and its mountable cameras have become a hit with athletes, particularly those in more extreme activities, where cameras normally aren’t practical. Think of the tip of a surfboard or the helmet on a skier. GoPro’s devices can produce stunning high-definition video. The problem is that video is becoming more commoditized. With every iteration, the iPhone’s camera gets a major improvement.
GoPro no longer has the action category to itself, either. At last year’s Tour de France, bikes were equipped with cameras made by Japan’s Shimano (7309.Japan) and Switzerland’s Garmin (GRMN). Sony (SNE), meanwhile, is becoming a player, too, and the electronic giant uses its own high-quality sensors. GoPro also puts Sony sensors in its cameras—a reliance that could put GoPro in a tough spot if Sony gets aggressive in the category. Rob Lopez at Vertical Group points out that, at this month’s Consumer Electronics Show, Sony launched an action camera that outspecs GoPro’s top-of-the-line Hero4.
Barron’s has repeatedly argued that GoPro’s valuation isn’t justified by the fundamentals. Last year, shortly after its initial public offering, we wrote that investors were overpaying for the stock, while ignoring a historical pattern of groundbreaking gadgets eventually being subsumed by newer devices. (See “GoPro’s Thrill-Filled IPO Adventure May End Badly,” July 14, 2014).
At $47.51, GoPro shares are up 22% since our cautious story ran. But the stock has been cut in half since hitting $98 in October. And it still looks expensive, trading at 38 times this year’s expected earnings. With the momentum having shifted, GoPro shares could continue their decline.
Lopez at Vertical Group rates GoPro a Sell with a fair value of $36.50. The target assumes a P/E of 25, which Lopez notes is 25% above the multiple for Apple (AAPL) during the iPhone and iPad boom from 2010 to 2012, when that company’s sales were rising 70% annually. Even the most bullish analysts aren’t that optimistic about GoPro’s future.