GoPro (GPRO) in Focus After Charity Stock Donation

Shares of the wearable camera manufacturer, GoPro (GPRO), were down Thursday, trading almost 7% lower than on Wednesday. GPRO’s stock closed at $85.4599/share, down $6.34/share from Wednesday. There are many reasons being hypothesized as to why the stock has plummeted. The consensus seems to agree that the chief reason was due to a sale of about 5.8 million shares belonging to the founders and head honchos of GPRO, Nicholas Woodman, and Jill Woodman. They sold the aforementioned amount of shares to give the money to their own charity foundation, The Jill + Nicholas Woodman Foundation.

This was not nearly a surprise; however it did cause the stock to tumble considerably. J.P. Morgan Securities LLC (JPM) was the lead book-running managers of GPRO’s public sale, or IPO, of about 20.47 million shares of Class A common stock, and Thursday JPM agreed to release the charitable organization from a lockup restriction with respect to the 5.8 million shares gifted to it.

The lockup restriction date was supposed to expire on December 26. Many have predicted that the shares transfer to charity was being done for tax reasons, and some have raised complaints over how this dodges the lockup period date. They accuse JPM and GPRO’s management of being secretive, and that view it as a sign that they believe the stock will be lower once the lockup does expire.

Another reason as to why GPRO may be taking a severe pummeling is because legendary investor and owner of the Street.com, Jim Cramer, has urged investors to sell their shares of GPRO. GPRO shares were down 3.7% at $88.40/share during pre-market trading hours. Cramer has stated that sales of GPRO’s newly launched HERO4 action camera will not fare well, and it will fail to impress investors.

GPRO’s shares were flying high, and they look as if they were unstoppable, as they soared to a year high of $96.45/share on Tuesday, after the company’s management had announced that two new action cameras would be available for sale from October 5, 2014. GPRO was a Zacks Rank #1 (Strong Buy), until very recently, and now it holds a Zacks Rank #3 (Hold). Shares of GPRO are slightly down in after-hours trading on Thursday, as investors continue selling off due to anxiety about further worries today.

Stock’s Prospects

It comes as no surprise that GPRO has taken a hit. Since GPRO’s IPO price of $24/share in June 2014, shares have skyrocketed, and the stock has almost quadrupled in value. If we look at the company’s financials, we will see how the stock is overvalued if we go by the forward P/E ratio, and how it ought to come down a bit. After all, shares were up by a whopping 50% in September alone.

Without a doubt, GPRO has had a crazy volatile day, and it is expected by many traders that GPRO has an $80/share support area, and that is true when looking at the stock’s history in the past few trading days. We do not know which direction the stock will be going today, but it is likely that it will face tough resistance to go back up to the $90+/share, when worried investors may seek to cash in.

GPRO’s Financials

The question that remains though is whether GPRO is a good investment. Many bullish analysts think that GPRO is a solid pick, because the company has a healthy cash reserve of $104.88 million, a balance sheet with a current ratio of 1:41, a debt-to-equity ratio of 86%, and a positive operating cash flow of $112 million annually. Nonetheless, let’s look at how the Q2 results for GPRO compare from the previous quarter, Q1 results:

3/31/2014		6/30/2014
Revenue (in millions)	$235.72	Revenue (in millions)	$244.61
Gross Profit (in millions)	N/A	Gross Profit (in millions)	$102.87
Net Income (in millions)	$11.05	Net Income (in millions)	-$19.84
Diluted Net EPS	0.09	Diluted Net EPS	-0.24

From the table above, one can see that despite the pros of investing in GPRO, the company is struggling with its finances, and it seems like GPRO is almost something like TSLA. Both stocks carry a lot of hype, and they have both taken a beating in the past turbulent and eventful month. Let’s all examine a snapshot of important statistics and factoids regarding GPRO, bearing in mind that the following figures are according to Yahoo! Finance:

GPRO important Figures
Market Capitalization (Billion)	$11.57
Enterprise Value (Billion)	$11.57
Forward P/E Ratio	195.32
PEG Ratio	5.88

Many bearish investors see the stock as very expensive and overvalued, and it is true when we look its forward P/E, and PEG ratios and compare them to the industry’s averages of 29.30, and 1.40, respectively. The stock is trading at a sizeable multiple of about 90 times future earnings. According to Yahoo! Finance, the stock is also suffering from a price-to-book ratio of 165.95, price-to-sales of 11.08, and a forward P/E ratio 90 when compared to projected 2015 revenues, and EPS growth of 25%.

The stock is also trading at about 261.8% the Fibonacci Resistance Sequence, at $92/93/share. Whether or not media advertisements 9videos from extreme sports-enthusiasts using GPRO’s gear) can help save GPRO’s overvaluation remains to be seen, but it is worth noting that the digital media market is a deflationary market, which could fail to justify GPRO’s high valuation.

GPRO is likely to pull back, and cash in on the huge gains it has made; it is risky to jump in now, even after Thursday’s correction, as the stock may have reached a price ceiling. The company’s market capitalization was also bigger than its enterprise value a few days ago, a negative omen. On the bright side, bullish investors only have to thank their fortuitous attitude, and look below at the comparison between GPRO’s performance the S&P 500 indexes’ performance. It may be wise to cash in on gains.

Bottom Line

It has now become a very risky game, and traders ought to exercise caution if they plan on buying some GPRO shares, as they may retract severely. After all, what goes up very quickly must also come down very quickly, and GPRO’s run may have very well come to a sweeping end. The stock is currently a Zacks Rank #3 (Hold), and another stock to consider investing in, from within the same industry, is Skullcandy Inc. (SKUL), which has climbed up 2.80% Thursday, which sports a Zacks Rank #1 (Strong Buy).

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