GoPro Inc (NASDAQ:GPRO) shares tumbled 6.66% to $67.12 in early trading session Monday. Until Friday, the stock had rallied close to 150% since its IPO in June. However, the stock began falling after Oppenheimer analyst Andrew Uerkwitz initiated coverage of GoPro with an Underperform rating and $45 price objective.
Investors have ‘unrealistic expectations’ from GoPro
Uerkwitz said the company will face an uphill battle going forward. Notably, GoPro is scheduled to report its fiscal third-quarter results on Thursday, Oct. 30. The research firm said GoPro has grown from one-man workshop to the world’s largest maker of action camcorders. This year is going to be a good one for the company with strong holiday sales. The San Mateo-based company has successfully completed its “first act.”
But the next step of moving beyond adventure cameras is going to be a real challenge. Uerkwitz said investors have unrealistic expectations from GoPro, and the stock is trading at lofty valuations. Oppenheimer expects the company’s growth rate to decelerate rapidly in 2015 and 2016. Uerkwitz said at CNBC’s Halftime Report that consumers purchased 24 million camcorders in 2010. But the number declined to 13 million units in 2013.
Oppenheimer forecasts the company’s FY2015 revenue to come in at $1.51 billion with $1.02 in earnings per share. Uerkwitz is projecting FY2016 revenue of $1.74 billion with EPS of $1.28. That means the company’s sales are expected to grow at 22% in 2015 and 15% in 2016. With new entrants in the market, GoPro is likely to face stiff competition. HTC has unveiled its Re at $200. It will hit the stores later this year. Polaroid has also dipped its toe in the action camera market with its Cube.
GoPro a favorite of short sellers
Meanwhile, short interest in GoPro has also been rising. According to Nasdaq, 8.17 million shares of the company were held short as of October 15. Considering GoPro had sold only 20.5 million shares at its public offering, this short interest is about 40% of the float. It indicates that short sellers expect the stock to decline significantly. However, it could cause a short squeeze if GoPro reports solid quarterly results on Thursday.