GoPro – A Retrospective

Go Pro – In September 2014, I wrote the following.

The most overlooked fundamental of valuation is that rapid growth in earnings over the long term requires a moat that provides a quasi-permanent barrier to entry.  Very few companies are surrounded by such moats.  Having a cool product today is not such a barrier unless it is the case that competitors cannot match the cool product tomorrow.  Rarely is that the case.

With a P/E ratio approaching 250, Go Pro is priced as if it has a large, stable moat around its products.  This is almost certainly not the case.  Gadgets like cameras are inherently reproducible and there are many Chinese, Japanese and even American companies ready to jump into the action camera market.  Go Pro seems to realize this and is trying to become a type of social media company with its own sharing platform.  Good luck.  The competition in that space, including You Tube and Facebook, is even more intense.

The bottom line is that GPRO is a great, creative company but it is wildly overvalued.  Investors buying Go Pro at prices of $75 or more are either betting on momentum or have “gone crazy.”

Today GPRO is price at $9.15.  The price suggests an action camera make in a competitive market.  The interesting question is why it took the market 20 months to recognize this.  The even more interesting question is are there similar instances of mispricing out there.

Go Pro – what do you think?

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