Once a Wall Street darling, GoPro (GPRO) has turned into a pariah. But the recent negativity on the stock, which has pressured its price to all-time lows, presents a buying opportunity for savvy investors.
True, recent headlines about GoPro haven't seemed encouraging. Last week, the company missed top- and bottom-line estimates for its quarterly earnings. That came after other developments, as summarized by CNBC: The company cut the price of its newest extreme sports video camera, the HERO4Session, in September. Coming just a couple of months after the camera's launch, this suggested demand for the device wasn't so hot. What's more, the CFO of Ambarella, which supplies chips to GoPro, said in a September conference call that the company expected declining revenue from its wearable camera business in the third quarter.
Meanwhile, Wall Street analysts have been reducing price targets and lowering ratings on GoPro's stock.
Those analysts dropping price targets say GoPro's best days of rapid growth may be past, as well-established corporate heavyweights begin to take market share. And questions raised by GoPro's harshest Wall Street critic, Morgan Stanley, about whether the company should be valued as a dynamic growth leader or just another camera company have added to the already anxious sentiment.
But GoPro remains the leader in its field, and there remain so many untapped markets around the world for its products and technology. Second, as explained below, some of those recent headlines aren't as bad as they seem. What's more, this is a consistently profitable company, and its earnings are expected to have a compounded annual growth rate of 17.2%.
GoPro's shares also are cheap compared to other stocks in the Nasdaq 100 stock index. GoPro was trading at nearly $100 in October 2014. One can argue that the stock was overvalued then. But its recent share price gives it a forward price-to-earnings ratio of 16.9. That means it's trading at a discount to the Nasdaq 100, which has a forward P/E of 19.9. It's also trading at a discount to the S&P 500, which has a forward P/E of 18.7.
Some traders rightly place more emphasis upon a stock's price-to-earnings-to-growth ratio. Right now, GoPro's PEG ratio is 0.72. Traders should not feel like they're taking a flyer on GoPro if they accept that analysts still predict this stock to have average annual earnings growth of 17.2% over the next five years.