Investors, brace yourselves for more punishment.
The stock, at around $39.50, are up 26% on the year to date. But that's small potatoes compared to where these shares were only two weeks ago when I told you GoPro was a great short. With shares trading at $47.97 back then, I said:
"While the stock may seem attractive after this [10%] decline, it's not. Because even at this seemingly more attractive valuation, the shares still command roughly 30 times this year's EBITDA, which doesn't make sense." This wasn't a popular opinion. But as it turns out, I was right.
Since then, GoPro shares have plummeted to a post-initial public offering low of $37.24, falling more than 22%. That the stock is still up 20% for the year to date only affirms how high the exuberance had gotten. There's still risk to the downside because these shares have yet to bottom following the company's $16.7 million operating loss.
While the company is growing revenue, helped by its 45% share in the action camera market, that's not enough -- not with the stock trading at 40 times 2015 estimates. That's four points higher than Facebook (FB). Apple (AAPL) is trading at only 14 times next year's estimates. Facebook and Apple are making money.
In the case of GoPro investors have to understand that this is still -- first and foremost -- an electronics company, despite how Wall Street analysts boast about the company's media ambitions. Electronic companies don't hold high margins.
An update on the progress of the transition towards media would help remove some concerns --- at least for the near term. GoPro was not available for comment. But until the numbers say otherwise GoPro has to be grouped with the likes of other electronic companies namely Sony (SNE), JVC (JVCZF) and (to some extent) Samsung (SSNLF).
Also, products like cameras, cell phones, camcorders and MP3 players become commoditized quickly. Only Apple has proven capable of making money by maintaining its margins. Apple, however, has a growing ecosystem that makes its products sticky. It's going to take time and plenty of money for GoPro to duplicate such a business or even come remotely close.
Last but not least, with the stock trading at such an expensive valuation, management has to execute to perfection only to match expectations. This means it must figure out ways to cut costs while transitioning into -- presumably -- higher-margin media business. That's a lot to ask of a young company. So where is the value going to come from?
I've made this point before: GoPro's lockup expiration will come sometime in December. This is when early investors (those who got in on the IPO price) will be able to sell on the open market. There are plenty of venture capitalists and mezzanine investors who can't wait to lock in some gains. We know they will sell. The only question is at what price.
I don't recommend touching this stock until lockup expiration comes and goes or the stock reaches $30.
At the time of publication, the author was long YHOO, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.