Is GoPro's Stock Overvalued Or Undervalued?

GoPro Inc GPRO shares have lagged the S&P 500 in 2021, generating a year-to-date total return of 5.5%.

GoPro’s stock has run out of steam in the past six months, but value investors may be wondering whether it’s time to buy the dip in GoPro.

Earnings: A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value.

For comparison, the S&P 500’s PE is currently at about 34, more than double its long-term average of 15.9. GoPro’s PE is currently 24.7, well below the S&P 500 average as a whole.

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Growth: Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 20.3. GoPro’s forward earnings multiple of 10 is less than half the multiple of the S&P 500 as a whole, making GoPro stock look undervalued. GoPro’s forward PE ratio is also significantly lower than its technology sector peers, which are currently averaging a 25.2 forward earnings multiple.

Yet when it comes to evaluating a stock, earnings aren't everything.

The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is about 1; GoPro’s PEG is 2.4, suggesting GoPro is somewhat overvalued after accounting for its modest growth.

Price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is 3.14, well above its long-term average of 1.62. GoPro’s PS ratio is 1.27, less than half the S&P 500 average. GoPro's Ps ratio is also down 35.2% over the last five years, suggesting the stock is priced at the low end of its historical valuation range.

Finally, Wall Street analysts see value in GoPro stock over the next 12 months. The average analyst price target among the five analysts covering GoPro is $12, suggesting about 35% upside from current levels.

The Verdict: At today's price, GoPro stock appears to be undervalued based on a sampling of common fundamental valuation metrics.

Photo: Vanja Cerovac from Pexels