GoPro Inc stock crashed after multiple rating downgrades from analysts. Shorts are piling up against GPRO stock.
California-based action camera maker GoPro Inc (NASDAQ:GPRO) is one of the best examples of how mass hysteria could lead to a tremendous destruction of shareholder's wealth. GPRO stock had listed on NASDAQ with much fanfare way back in 2014. Riding on the strong bullish sentiment, the stock almost tripled investors wealth in less than half a year. Barely five months after its listing, the stock touched its all-time high of $93.85 in October 2014. But since then, it has been a very rough ride for the shareholders of the eponymous action camera makers. GPRO stock has lost more than 90% of its value since then.
GoPro stock got a new lease of life when the company announced the launch of Hero 5 cameras and Karma drones. The stock rallied more than 50% into the launch of Karma drones. However, the respite for investors was short lived as GoPro management botched the launch of Karma drones. GoPro stock has not been able to recover from the recall of Karma drones. While the company relaunched the drones recently, the enthusiasm around the product has cooled off. GPRO stock is down more than 50% in the last 6 months and 25% since its disappointing earnings a month back.
GoPro Inc stock crashes after analysts downgrades.
Shareholders of GoPro Inc. were hit with a fresh blow yesterday when Goldman Sachs downgraded GPRO stock to "sell" from "neutral". The research firm also slashed its price target from $9.5 per share to $6 per share, a reduction of more than 36%. Predictably, GPRO stock fell more than 7% yesterday on the news. The stock fell to $7.95, its new all-time low since the company went public in 2014, before regaining some of its lost ground and closing the day at $8.14. In spite of yesterday's crash, GoPro stock still has more than 25% downside based on Goldman's price target.
While GoPro Inc with its Hero line of cameras remains the dominant company in the action camera market, it still remains a niche product. Saturation of the action camera market was the key concern driving the downgrade. Action cameras have failed to attract the mainstream customer. In a note to clients, Goldman Sachs analyst Simona Jankowski wrote:
"We lower our estimates below consensus as we expect GoPro to continue to struggle fundamentally. In its core action camera market, the company exited a disappointing holiday season with excess inventory, as noted by key supplier Ambarella. It also faces a new competitor, YI Technology, whose products are competitive with GoPro’s but at a $100 (25-33%) lower price point. Meanwhile, GoPro’s recent restructuring, which eliminated its entertainment group, may reduce its ability to differentiate through content.
The recent restructuring will also hurt GoPro as it will reduce its ability to differentiate itself from others. As we have noted in previous posts, action camera and drone markets are extremely competitive. In her note, Simona Jankowski also raised concerns around GoPro's rate of cash burn. The company is not expected to make much progress in the drone industry either as it trails DJI by a mile.
Goldman was not the first one to give a "sell rating" on GPRO stock. Earlier in the month, Citi Research initiated its coverage of GoPro stock with a "sell" rating. Here too, the saturation in the action camera market was the key concern. While Citi acknowledges that GoPro has been optimizing its operating expenses, it believes that breakeven is still two years away.
Is the worst over for GoPro Inc stock?.
The main question is whether worst is over for GoPro. If so, then investors could get the stock for cheap. However, as pointed out by Citi research, GoPro still has a very long way to go. GoPro's recent earnings were no help to shareholders as the company disappointed on the earnings. Shorts have been piling up since then. It is true that GoPro is a dominant force in the action camera industry, however, the action camera industry itself is stagnating. As a Citi Research analyst put it, GoPro is the "best house in the deteriorating neighborhood". If GoPro wants to get back the confidence of the market, it needs to show traction on the drone front and nail its next product launches. Given the rising concerns and bearish sentiment around the stock, Investors should avoid GoPro stock for now. If you are looking to invest in the technology sector, have a look at our Top Stock Picks from technology sector which have outperformed the NASDAQ by over 120%.