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GoPro: When A Growth Stock Became A Value Stock

Summary

With negative sentiment growing, GoPro has set aside its high-flying valuation.

Under $30/share, GoPro's valuation looks attractive compared to other hardware companies in similar industries.

GoPro's dramatic fall from grace finally gives the stock an attractive risk/reward profile.

The rise and fall of GoPro (NASDAQ:GPRO) over the last year and a half has been epic and owes its wild ride due to market psychology, not fundamentals. However, what the market completely disregarded in the past may finally become the savior of the stock over the next 6-12 months.

In the past, when analyzing the stock, you can take fundamentals and throw them out the window. GoPro's rise to $92 made about as much sense as it fall to $27/share in under 12 months. At its height, the stock sported a P/E ratio above 85 and a price around 9x total sales. Today, the stock sports a 24.7 P/E ratio and a P/S ratio of just 2.5. Even for momentum stocks like GoPro, at some point fundamentals start to matter. The question becomes, when does market sentiment become so negative that fundamentals start to take over?

Change in Market Sentiment

If you were to have followed analysts' recommendations and price targets in late 2014, you'd likely be down 50%-60%. There were no shortage of analysts to jump on the GoPro bandwagon when it was a high-flying momentum stock with zero fundamentals to support the ridiculous valuations. Analysts from FBN Securities, JPMorgan, Piper Jaffray, Citi, and Wedbush all updated their recommendation to outperform ratings or maintained $70-$94 price targets in the fourth quarter of 2014, when the stock was trading at all-time highs with zero fundamental support. Simply put, these analysts threw fundamentals aside because the market was so bullish on GoPro's ability to dominate the new action-camera market.

Now, after the stock has fallen over 50% YTD, there again is no shortage of analysts to jump on the negativity bandwagon and issue downgrades or cut price targets. Just in the last month, there's been a negative Barron's article on GoPro along with downgrades from Cleveland Research and Morgan Stanley. Clearly issuing a downgrade after a stock has already fallen over 50% YTD holds no insight beyond trying to get in-line with overall...


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