GoPro Inc: More Bumpy Ride Ahead?

GoPro Inc (NASDAQ:GPRO) stock has almost tripled from its June IPO price of $24. The action camera maker reported better than expected third-quarter results and issued upbeat guidance for the current quarter. It benefited from the solid holiday sales. However, the stock has declined about 28% from its Oct.7 high of $93.85. Increasing short interest and forthcoming lockup expiration have weighed heavily on the stock in the last few weeks, reports MarketWatch.

Short interest in GoPro is piling up

In early October, GoPro co-founders Nick and Jill Woodman gifted 5.8 million shares of the company to their new charity organization. It was an unusual move where the company management broke their lockup restriction, raising concerns among investors. GoPro’s lockup expires on Dec.23, and the company insiders are prohibited from unloading their stake before the expiration.

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On Dec.23, a large number of shares owned by the company insiders will be available for sale. As a result, the demand-supply gap will narrow down, which may bring down the prices further. Meanwhile, short interest is also piling up in GoPro stock, according to Astec Analytics. The research firm said that the short interest increased at a much faster pace in the last two weeks. As of Monday, 9.2 million GoPro shares are held short. Kerrisdale Capital is among those shorting the stock.

GoPro overvalued

Another concern is the stock’s high valuation. Pacific Crest Securities analyst Brad Erickson says that GoPro’s valuation is too high, even after accounting for the strong sales of its action cameras. According to FactSet, the stock currently trades at 67x its forward earnings estimate. Pacific Crest has a Sector Perform rating on the stock. Brad Erickson told clients in a research note that the upcoming lockup expiration will likely offer a “better entry point.”

Other experts argue that the strong holiday sales have already been priced in. GoPro is also planning to enter the consumer drone market by the end of 2015. Shares of the San Mateo-based company fell 0.78% to $67.38 at 10:49 AM EST on Wednesday.