Most analysts thought GoPro would not refresh its product lineup at all in time for the holidays, but the company has, although only slightly. It seems unlikely that such a slight refresh will spur significant demand this holiday shopping season, but analysts are split on GoPro’s potential in the near term.

GoPro: Weak Session Demand Not A Surprise, Says Analyst

GoPro management turn bearish on Hero 4 Session

Pacific Crest Securities analyst Brad Erickson cut his estimates this week based on soft demand for GoPro’s Hero 4 Session. He wasn’t surprised that demand for it was weak, although he was surprised that management had been betting so heavily on it. Recently they warned investors that the Session hasn’t been selling very well, however, so they have clearly been taken by surprise.

Here’s a summary of his current estimates for GoPro:

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Erickson continues to rate GoPro at Sector Weight and said he sees continued downside for the company’s stock because investors are worrying about saturation of the action camera market. In spite of these worries, the analyst still expects the action camera maker to post year over year growth next year driven by new products.

Some of Erickson’s comments echo those made by Sterne Agee CRT analysts recently.

GoPro takes a hit from seasonal weakness

It’s common for the summer months and early fall to be seasonally weak for consumer device companies like GoPro because customers slow their purchases ahead of the holiday shopping season. Erickson said his checks in the U.S. show a 20% month over month decline in sell-through. He also found that GoPro seems to have slowed down its shipments because the number of days of inventory also fell.

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The analyst isn’t too worried about these declines, however, because he attributes them at least partially to seasonal slowness.

Difficulties in valuing GoPro

For now, Erickson thinks investors won’t be changing their minds on the saturation of the action camera market, especially because the deceleration in growth is so pronounced in GoPro’s core market. He noted that hardware companies which face this type of concern on Wall Street have traded at a multiple as low as eight times. As a result, he sees further downside risk for GoPro. Here’s a look at some comparables the analyst compiled:

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He places a fair value of between $31 and $38 per share on the camera maker, which is based on 15 to 20 times his estimates for next year. This valuation assumes a 41% growth rate in units this year and 14.7% next year, plus a “slight” decrease in average selling price this year and stable average selling prices next year. His valuation also assumes that GoPro sees $90 million in revenue from drone sales next year.

The analyst pegged his bull case scenario at $70 per and his bear case at $20 per share. As of this writing, shares of GoPro were up 1.31% at $30.25 per share.

Graphs and charts in this article are courtesy Pacific Crest Securities.