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Wedbush and Dougherty & Company Downgrade GoPro

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Nov. 20 2020, Updated 2:28 p.m. ET

Price movement

GoPro (GPRO) has a market cap of $1.6 billion. It fell 4.1% to close at $10.41 per share on November 9, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -18.9%, -30.7%, and -42.2%, respectively, on the same day. GPRO is trading 21.9% below its 20-day moving average, 28.1% below its 50-day moving average, and 16.9% below its 200-day moving average.

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Related ETF and peers

The iShares Morningstar Small Value ETF (JKL) invests 0.28% of its holdings in GoPro. The ETF tracks a market-cap-weighted index of US small-cap value stocks. The index stocks from the 90th to the 97th percentile of the market-cap spectrum, using fundamental factors. The YTD price movement of JKL was 12.8% on November 9. The market caps of GoPro’s competitors are as follows:

  • Sony (SNE) — $38.4 billion
  • Canon CAJ) — $38.2 billion
  • Best Buy (BBY) — $12.3 billion

GoPro’s rating

GoPro’s rating was downgraded after the recall of its Karma drones. Wedbush downgraded GoPro’s rating to “neutral” from “outperform.” It also reduced the stock’s price target to $9 from $12 per share. Raymond James downgraded GoPro’s rating to “market perform” from “outperform,” and Dougherty & Company downgraded GoPro’s rating to “sell” from “neutral” and set the stock’s price target at $6 per share.

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Performance of GoPro in 3Q16

GoPro reported 3Q16 revenue of $240.6 million, a fall of 39.9% from the revenue of $400.3 million reported in 3Q15. The company’s gross profit margin narrowed 630 basis points between 3Q15 and 3Q16.

Its net income and EPS (earnings per share) fell to -$104.1 million and -$0.74, respectively, in 3Q16, compared with $18.8 million and $0.13, respectively, in 3Q15. It reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) and adjusted EPS of -$73.6 million and -$0.60, respectively, in 3Q16, compared with $56.7 million and $0.25, respectively, in 3Q15.

GPRO’s cash and cash equivalents and inventory fell 52.9% and 22.8%, respectively, between 4Q15 and 3Q16. Its current ratio fell to 1.4x and its debt-to-equity ratio rose to 0.78x in 3Q16, compared with 2.8x and 0.43x, respectively, in 4Q15.

Projections

GoPro has made the following projections for 4Q16:

  • revenue of $600 million–$650 million
  • gross margin of 39%–41%
  • non-GAAP (generally accepted accounting principles) EPS of $0.25–$0.35
  • tax rate of 12%

It projected revenue of $1.25 billion to $1.3 billion in fiscal 2016. The company has made the following projections for fiscal 2017:

  • revenue growth in the double digits
  • operating expenses of ~$735 million
  • tax rate of ~15%

For an ongoing analysis of this sector, please visit Market Realist’s Consumer Discretionary page.

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