GoPro Stock Up Sharply On Bullish Analyst Note

  • GoPro stock has rallied strongly after JPMorgan recently said that some of its cameras enjoyed strong sales during the holiday season.
  • The negative sentiment surrounding GoPro stock seems to be thawing out now.
  • What does 2016 hold for GoPro shares?

Shares of action camera maker GoPro (NASDAQ:GPRO) have started the year on a strong note, having gained 11% in the year’s first two trading sessions. GoPro stock gained 8% on Tuesday after JPMorgan’s Paul Coster said that strong holiday sales of GoPro’s Hero4 Black and Silver models could results in a fourth quarter revenue surprise. Coster is one of the remaining GoPro bulls on Wall Street even as most analysts have soured on the company particularly during the second half of 2015 on poor Hero4 Session sales and subsequent price cuts by the company. Coster has maintained his GPRO price target of $45, which represents a huge 120% upside to current price.

To be fair, part of GoPro’s recent rally can be attributed to profit taking and deleveraging by shorts who did not want to cover in 2015 due to tax implications. Other tech names that endured steep declines in 2015 including SunEdison (NYSE:SUNE), Rubicon Technology (NASDAQ:RBCN), QuickLogic (NASDAQ:QUIK), as well as 3D Printing stocks 3D Systems (NYSE:DDD), Voxeljet (NYSE:VJET) and ExOne (NASDAQ:XONE) are all up sharply this year. About 50% of GoPro stock's float is shorted, and rampant short covering can provide a significant boost to the shares.

But GoPro’s rally extends back about a month. The shares have gained 16.2% over the past one month as the sentiment about the company seems to be improving particularly after the company announced that it was going to launch a consumer drone during the early part of 2016.

With so many shorts, it’s hardly surprising that GoPro stock is so volatile and has sort of become a pump and dump stock. The problem with most GoPro bears is that they have been focusing solely on the Hero4 Session while completely ignoring GoPro’s other models. Expectations surrounding Hero4 Session were too high. Going by recent GoPro downgrades, it appears as if many analysts were expecting at least 30%-40% of GoPro’s revenue to come from the tiny camera, which appears unrealistic when you consider that GoPro launched no less than five models in 2015.

GoPro bears have largely been discounting the fact that the wearable camera market is predicted to grow from 5.6 million shipments in 2014 to 30.6 million units in 2020, translating to 33% CAGR. GoPro is still considered the most valuable brand in this market, which implies that it’s likely to grow faster than its peers in the market as it continues to steal market share from its smaller rivals. While GoPro cannot be said to occupy a wide moat in this business, the company has worked hard to create an ecosystem of software solutions around its cameras to complement their reputation as high quality, highly durable products. Although GoPro’s competition is growing, there is no evidence yet that any manufacturer has been able to come up with a superior product.

The Drone Opportunity For GoPro

GoPro’s consumer drone, aka GoPro Karma, is due for launch in early 2016. Not much is known about how the drone will look like or its price points. But some of its key features, such as the ability to shoot a 360-degree video are already known. 360-degree videos are all the rage currently. The current crop of consumer drones from the likes of DJI and 3D Robotics are not very diverse. GoPro’s key advantage here is that the company can bundle its cameras with its drones to offer a package that will probably be considerably cheaper than buying the separate products.

GoPro has already established a reputation as a highly innovative tech company. I believe the company is in a good position to take the drone opportunity and run with it. Whereas GoPro won’t enjoy first-mover advantage with drones, it will become the first action camera manufacturer to offer drones as well. This could prove to be a game-changer for the company.

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