Technical data suggests that GoPro hit bottom after almost two full days of declines, and today shares climbed by more than 5% to touch $18.89 per share. The positive move comes despite a significant price target cut from Sterne Agee CRT analysts, who slashed their target from $38 to $25 per share even though they remain bullish on the stock.
Analyst tug-o-war with GoPro
GoPro shares tumbled after an analyst downgrade on Monday but then began to rebound on Tuesday after a guest on CNBC suggested that the stock will double next year. The problem is that all signs point to weak demand for the company’s cameras – and not just for the Session camera, which is turning out to be a very hard sell despite two price cuts.
Sterne Agee CRT analyst Rob Cihra believes that GoPro management made a bad decision by not refreshing the flagship HERO camera this year. However, he said they should be able to fix their product cycling problem easily enough. He believes that if GoPro can correct this problem, the company’s stock may see “a fairly dramatic reversal” by the second quarter. At that time, he expects both the overdue HERO5 camera and the Karma quadcopter – GoPro’s first drone – to be ramping.
At the same time, the difficult year over year comparisons the company has been facing should start to ease.
GoPro still dealing with fallout from the Session
It seems likely that GoPro was relying on its small Session camera to boost sales and make up for the lack of a HERO refresh in 2015, but that decision has proven to be costly. Launching the HERO5 by the second half of 2016 will give GoPro fans the first new flagship model in almost two years. Cihra believes the long time span between flagship refreshes should help the company’s stock reverse.
He believes the combination of the HERO5 and the Karma drone will flip GoPro’s revenue and year over year declines of more than 20% in the fourth quarter over to growth of over 40% year over year in the second half of next year.
The price of the Session camera is now half of where it was price when it was launched, and as a result, Cihra cut his fourth quarter revenue estimate to $501 million and his earnings estimate to 25 cents per share. His previous estimates were $540 million and 42 cents per share. For all of 2016, he’s estimating $2 billion in revenue and earnings of $1.02 per share, which are down from $2.1 billion and $1.40 per share. Thanks to the HERO5 and the quadcopter, however, he expects GoPro’s leverage to push its earnings back up to $1.50 per share for 2017.
No real competition for GoPro
The recent weak demand for GoPro’s cameras has served to compound the bearish concerns about competition from less expensive cameras but Cihra’s not worried. He thinks the company’s products are “unique” and that there isn’t much “meaningful competition.” He noted that the company has created a strong image and brand and believes that they are worth more than what the current share price suggests.
He continues to believe that GoPro’s market is a niche one even though bears continue to question just how large the company’s total addressable market is. However, he believes the niche can support millions of units with GoPro possibly hitting between 7 million and 9 million units per year in the next couple of years.
Technicals support GoPro bottom
While Cihra’s report on GoPro was pretty positive despite the large price target cut, there’s also another reason the company’s stock might be up today. Investors who like to dig into the technical aspects of stocks may have noticed some signs that GoPro shares hit bottom earlier this week.
Bidness Etc.’s technical analysts pointed out a falling wedge pattern on the company’s stock chart. As they had been expecting, the stock did fall to $16.15 per share, but as that happened, the chart formed the wedge pattern, which they say suggests a rebound in the share price. As a result, they shifted their outlook from “bearish” to “neutral/ bullish.” They added that if GoPro shares surpass $21.13, then their suggestion that they have hit bottom is confirmed.
Further, this could cause GoPro shares to rally up toward $24.21 – approaching Cihra’s price target mentioned above – and possibly go as high as $29.19.
