While the action camera company GoPro, Inc. (GPRO) offers unique benefits such as high-quality 4k video recording, compact size, and the ability to capture extreme sports activities, it also faces challenges in a competitive landscape where smartphones with advanced camera capabilities are increasingly becoming affordable. Moreover, the present uncertain economic scenario could add to its woes.

In this article, I will discuss the factors that suggest a cautious approach, highlighting the need to wait for a more suitable entry point.

GPRO’s first quarter financial results showed a decline in revenue of 19% year-over-year, reaching $174.72 million. While the company boasted a 36% increase in subscriber count, reaching approximately 2.36 million, other figures painted a negative picture. Revenue from the retail channel decreased by 38%, resulting in a net loss of $30 million, or negative $0.19 per share.

Brian McGee, GPRO’s CFO, and COO, said, “Our pandemic strategy allowed us to address supply chain and retail channel constraints while driving ASPs, increasing profitability, and rapidly growing our subscriber base to more than two million subscribers.”

He further said, “In our post-pandemic world, we are now implementing an updated go-to-market strategy that we believe will result in revenue and earnings growth that we will use to drive innovation and significantly increase share buybacks.”

GPRO has declined 35.8% over the past year to close the last trading session at $4.18. It has also tumbled 16.1% year-to-date and 19.2% over the past three months.

Here’s what could shape GPRO’s performance in the near term:

Deteriorating Financials

During the fiscal first quarter that ended March 31, 2022, GPRO’s revenue declined 19.4% year-over-year to $174.72 million. Its gross profit decreased 42% year-over-year to $52.50 million. Its total operating expenses grew 12.2% from the previous-year quarter to $92.23 million.

Also, the company reported a non-GAAP net loss of $28.58 million, compared to a non-GAAP operating income of $15.20 million in the previous-year quarter. Its non-GAAP net loss per share of $0.18 compares to a non-GAAP net income per share of $0.09 in the year-ago quarter.

Poor Profitability

GPRO’s trailing-12-month negative net income margin of 0.64% compares to the industry average of 4.28%. Its trailing-12-month EBIT and EBITDA margins of negative 0.06% and 0,71% compare to the 7.33% and 10.90% industry averages.

Additionally, its trailing-12-month negative ROCE, ROTC, and ROTA of 1.14%, 0.05%, and 0.66% are lower than the industry averages of 10.18%, 6.08%, and 3.64%, respectively.

Mixed Valuations

In terms of forward non-GAAP P/E, GPRO is currently trading at 29.88x, which is 108.4% higher than the industry average of 14.34. Its forward EV/EBITDA multiple of 15.68 is 63.42% higher than the industry average of 9.59.

However, GPRO’s forward P/B multiple of 1.08 is 58.2% lower than the industry average of 1.08, and its forward EV/Sales of 0.50x is 56.5% lower than the industry average of 1.14x.

Unfavorable Analyst Estimates

Analysts expect GPRO’s revenue for the fiscal third quarter ending September 2023 to amount to $315.16 million, indicating a rise of 3.3% from the prior-year quarter. The company’s EPS for the same quarter is expected to decline 18.5% year-over-year.

Moreover, its EPS estimate of $0.14 for the fiscal year 2023 indicates a 70.2% decline compared to the previous year. Its revenue is expected to fall 1.3% year-over-year to $1.08 billion in the current year.

POWR Ratings Reflect Neutral Outlook

GPRO has a rating of C, translating to a Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. The stock has an F grade for Growth, in sync with its deteriorating financial performance in the previous quarter.

Its D grade in Stability is justified by its 24-month beta of 1.36.

GPRO is ranked #31 among 44 stocks in the C-rated Technology – Hardware industry.

Click here to access GPRO’s Momentum, Value, Quality, and Sentiment grades.

Bottom Line

The stock is currently trading below its 50-day and 200-day moving averages of $4.35 and $5.13, indicating a downtrend.

Moreover, the company witnessed a decline in its revenue stream and reported net losses. Given the high-interest rates and sticky inflation, consumers are scaling back their spending, which could create more challenges for the company.

So, I think it could be wise for investors to exercise caution and wait for a better entry point in the stock.

Stocks to Consider Instead of GoPro, Inc. (GPRO)

Unfortunately, the odds of GPRO outperforming in the weeks and months ahead are significantly compromised. However, many good stocks in the Technology-Hardware industry have impressive POWR Ratings. So, consider these three A-rated (Strong Buy) stocks instead:

Panasonic Holdings Corp. ADR (PCRFY)

Ricoh Company, Ltd. (RICOY)

Canon Inc. ADR (CAJ)

What To Do Next?

Get your hands on this special report with three low priced companies with tremendous upside potential even in today’s volatile markets:

3 Stocks to DOUBLE This Year >

GPRO shares were trading at $4.25 per share on Monday morning, up $0.07 (+1.67%). Year-to-date, GPRO has declined -14.66%, versus a 12.99% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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