GoPro Inc (NASDAQ:GPRO) shares surged 3.20% to $61.97 after JPMorgan Chase upgraded the stock in a research note. The stock had declined more than 27% between Oct.7 and Dec.11. JPMorgan analysts Paul Coster and Paul Chung’s upgrade from Neutral to Overweight would encourage investors to buy a piece of GoPro ahead of the scheduled lockup expiration on Dec.23.
The risk-reward ratio is favorable
However, the research firm maintained its $70 price target as the stock has fallen below that figure. They noted that the stock has underperformed the S&P 500 index since its secondary offering last month. These is still some risk related to the lockup expiration. But analysts believe the “risk-reward ratio has tilted favorably” after the recent sell-off. JPMorgan’s price target reflects 17% upside from the current level.
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The Dec.23 lockup expiration will see about 15.2 million more GoPro share available for trading. It will increase the float from about 36 million to 51.2 million. Over the last two months, the stock has witnessed unusually high short selling, creating concern among investors. Currently, about 10 million GoPro shares are held short. But Coaster and Chung said the company is well-positioned to turn these losses around next year.
GoPro to expand in China
JPMorgan’s checks suggest that GoPro’s “lean channel inventory” has helped it improve the average selling price of its high-end Hero4 cameras. Demand for the higher-priced Black Edition remains robust, while Silver Edition is also selling pretty well. What’s more, analysts expect GoPro to start selling its actions cameras in China and other international markets soon. It may prompt the company to revise its FY2015 guidance upward.
GoPro enjoys a position where there are no noteworthy competitors to eat into its market share. JPMorgan said the company’s entry-level camera is capturing new demographics, without any evidence of cannibalization of its high-end products. It could lead to upgrades over time. However, Pacific Crest Securities analyst Brad Erikson is cautious over the company’s higher valuation. He believes the upcoming lockup expiration will serve as a better entry point.