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Wednesday marked yet another all-time high for shares of action-camera maker GoPro (Nasdaq: GPRO). GoPro stock is now up more than 225% from its IPO price.
If you remember back to the GoPro IPO back in June, the stock began trading at $24 per share and rose just over 30% to end its first day of trading at $31.33 per share. The stock closed at $78.46 per share on Wednesday, yet another all-time high for this high-flying stock and capping off a two-day jump of 15%.
Source: Stockcharts.com
The big question is why does GoPro stock keep rising? And how much further can it go?
First, let’s back up a bit.
GoPro first gained popularity with action sport enthusiasts who used GoPro’s versatile, small and nearly indestructible cameras to capture point-of-view angles that had never before been possible.
But to say that GoPro is a niche product for action sport enthusiasts isn’t fair. And is simply inaccurate.
Perhaps my favorite YouTube video features a man who has been accepted by a lion pride and hyena cackle (clan) outside of Pretoria, South Africa. The 15-minute video is more nature documentary than anything else. I can’t really do the clip justice with words, so I suggest you watch it.
But the reason this is significant is that this genre of film making, nature documentary, along with countless other genres of filmmaking have been changed forever by GoPro. And I think the market is waking up to this.
Instead of a crew of videographers lugging hundreds of pounds of bulky camera gear around the world, the people who produced this video did so using only GoPro cameras. The best part is that the footage they got would NEVER have been possible with traditional film equipment.
In one shot a hyena takes a GoPro camera in its mouth. In another a lion wears a camera, giving us a lion’s point-of-view and an incredible view of the lion’s shoulder blades in motion.
GoPro’s cameras have changed cinematography forever. The newest cameras capture video in 4k format, significantly higher resolution than today’s industry standard for high-definition, 1080p.
GoPro seems to have found the sweet spot of hardware and content.
The company offers a smartphone app and video editing software for free. From the app, users can control their GoPro camera and share videos. From the video editing software users can easily create high-quality videos without spending hundreds (or even thousands) on video editing equipment and non-GoPro software.
It’s this combination of content and hardware that fueled Tuesday’s 6.75% pop and Wednesday’s 7.66% pop, the result of an analyst note that cited GoPro’s increasing importance to the world of filmmaking.
The analyst, Shebly Seyrafi of FBN Securities, noted that GoPro’s international exposure is impressive and expected to ramp up considerably. GoPro reported that 38% of its revenues coming from overseas and 80% year-over-year growth in Asian countries.
Interestingly, GoPro stock has now risen above that analyst’s price target of $70 per share. And its valuation is looking increasingly ridiculous.
Since GoPro isn’t turning a profit we can’t compare its Price-to-Earnings (PE) ratio to that of other stocks or the S&P 500. But we do have other metrics to compare.
GoPro’s Price-to-Sales ratio sits just above 16.10 compared to the S&P 500’s Price-to-Sales ratio of 1.77. GoPro’s Price-to-Book ratio sits around 203.80 compared to 2.79 for the S&P 500. And its Price-to-Free Cash Flow ratio sits at 85.10 compared to 17.2 for the S&P 500.
The pattern you should be seeing is that the valuation is ridiculous. But the valuation also looked ridiculous in late June when I suggested investors steer clear of GoPro until the valuation settled out. GoPro stock is up more than 80% since then.
As much as I believe GoPro is here to stay, I simply can’t justify recommending this stock as anything other than a speculative play.
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