This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

GoPro Is Still Not Picture-Perfect and Investors Should Be Worried

Stocks in this article: GPRO FB AAPL SNE JVCZF SSNLF

NEW YORK (TheStreet) -- GoPro (GPRO) might have market-beating potential, but the only thing taking a beating lately is its stock.

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.

READ MORE: 10 Stocks Carl Icahn Loves in 2014

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.

READ MORE: Warren Buffett's Top 10 Dividend Stocks

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.

READ MORE: 8 Stocks George Soros Is Buying in 2014

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.

Follow @Richard_WSPB

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

READ MORE: 4 Stocks Warren Buffett Is Selling in 2014

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs