WSJ: GoPro A Value Trap In 2016

• GoPro Inc GPRO now expects a 17 percent revenue decline in Q4.
• The stock has fallen more than 72 percent in 2015.
• While GoPro’s stock currently has attractive valuation metrics, the company needs a product growth catalyst to justify buying the stock.

A recent Wall Street Journal article highlights how quickly GoPro may have transitioned from a growth stock to a value stock to a value trap in just over a year. As GoPro shareholders continue to wait for the company’s next growth driver, potential buyers will likely focus more on the company’s slumping revenue than its attractive valuation metrics.

Growth dries up
After averaging 47 percent year-over-year (Y/Y) revenue growth over the past eight quarters, GoPro recently projected that Q4 revenue will come up 17 percent short of last year’s number.

GoPro was hoping that its new Hero4 Session camera would drive Q4 growth this year, but disappointing sales and multiple price cuts have reduced the price of the new device by 50 percent since its launch in July. The price cuts might help move units during the holiday sales period, but they also likely mean that the company’s historically high 40-plus percent margins will take a big hit.

The value argument
Incredibly, GoPro’s share price has fallen 72.1 percent so far in 2015. From a value perspective, the stock has never looked better. With no major debt on its books and a forward P/E ratio of only 13.5, the stock looks like a bargain compared to the nearly 20.0 average forward P/E of the NASDAQ.

Potential value trap
Unfortunately, without an income driver, the value in GoPro’s shares could soon evaporate as quickly as the company’s market cap has. GoPro chip supplier Ambarella Inc AMBA recently announced that its Q4 revenue will fall well short of expectations.

In addition, the company noted that its action camera business will continue to be weak throughout the first half of 2016, indicating that GoPro likely does not have a potential game-changer in the pipeline until at least the second half of next year.

Disclosure: the author holds no position in the stocks mentioned.