GoPro: Analysts Got This Stock Wrong, But Won't Admit It

| About: GoPro (GPRO)

Summary

Analysts really got this stock wrong, but they won't admit it.

They still stick to their bullish outlook despite deteriorating fundamentals or wait too long to change their outlook.

Don't stay with GoPro just to be proven right.

I offer some insight on how the losses could have been avoided.

GoPro (NASDAQ:GPRO) reported a quarterly loss. Yet, there is hope. There is always hope. It could recover and it could propel itself to its former glory.

For those of you hanging on to your stock, I ask you to consider this one important question. Are you holding on to the stock in hopes to recover your losses, in hopes to be proven right?

Well, you are in good company. Unfortunately for you, the analysts do not have skin in the game. Their "unbiased" nature will tell you that the downside is limited and they will stick to their guns.

Be Wrong in a Crowd

Many analysts are still bullish on the stock. Only Piper Jaffary decided to downgrade the stock after it lost over 75% of its value. It really calls into question whether these analysts truly care about making you money.

(Source: Yahoo Finance-Analyst Opinion and Chart)

Another view breaks down just how bullish analysts really are. It is depressingly surprising.

For those of us who are familiar with the Wall Street lingo, a "hold" is a gentleman's sell. For those unfamiliar, it may be perceived as neutral to an OK buy. This makes GPRO appear to be a stock that can still go up. The novice investor will believe that the best and brightest know something they do not and will blindly follow bad recommendations. I should not be seeing a single buy rating at this point in the stock's performance.

(Source: Nasdaq)

Don't Be an Analyst

It is difficult to find the analysts covering the stock. Through some digging I was able to find two. Erinn Murphy is from Piper Jaffray and Jeremy David is from Citigroup. I looked at their respective statistics on Tipranks to see if maybe this was a one time blunder. Unfortunately it was not. (Yes, I tweaked Erinn's screenshot to make the information fit better.)

(Source: TipRanks.com)

(Source: TipRanks.com)

These statistics should reveal something to you.

First, before you listen to an analyst, look at his or her track record. Both these analysts have terrible track records as indicated by their ranks and their returns. Less than 50% of their ratings were correct, worse than a coin toss. These brief statistics should be enough to alert you to do your due diligence to see if the stock is right for you.

Second, analysts are very short-term oriented and stubborn. On GPRO, you can see how many times Erinn reiterated her buy rating and then waited too long before initiating and reiterating a sell rating. An investor's profit on GPRO would have vanished. This is no way to give a recommendation. An analyst needs to take responsibility and try to protect his or her investors' profits based on his or her recommendation. Otherwise, these analysts sound like "expert" panelists on a Fox News debate.

The same issues apply with Jeremy's calls on the stock. I'm assuming that the reader owns the shares. If so, he basically told you to keep holding your GPRO shares as the stock continued to tank.

Keep It Simple

I always try to stress to keep things simple. Complex and convoluted valuations can make one seem intelligent. Unfortunately, we seemed to be fascinated with the complex, thorough analysis that Wall Street gives rather than a simple analysis that can protect our portfolios.

Below, I go over a simple thought process to analyze GPRO.

There was a lack of public history. I bring this up because investors should have waited for more operational history as a public company to see how the company would have operated under consistent scrutiny. Having just one 10-k report and the recent earnings report is not enough information.

Nonetheless, with the information given, we can clearly see a slowdown in revenue growth. If you had not entered the stock yet, this would be your clue to wait. If topline is not growing there is no need to proceed any further. Looking at the operating earnings, there really is no trend to decipher.

(Source:GoPro Investor Relations)

Also, there is not enough information on earnings beats. A company with a consistent earnings beat is a company that should be on your radar. GPRO has been around for only four quarters, and its earnings beat is basically a coin toss. In reality, it confirms the lack of information currently available to make a sound decision.

(Source:Nasdaq)

Given the latest earnings report, I can make the argument that management has recognized some of the hardships with a quote from Nick Woodman:

"However, growth slowed in the second half of the year and we recognize the need to develop software solutions that make it easier for our customers to offload, access and edit their GoPro content."

I also can make the argument that GPRO's "Recent Highlights" indicate that demand is still there for the cameras, and the lower guidance indicates that the company is trying to be conservative and not over promise to investors. All good traits that represent a potential upside. However, I will not because I feel that there is just not enough information to make a well-thought out decision.

In 5-10 years if GPRO is still around, I will be very interested in looking at the investment potential of the company.

Verdict

I have said it before and I will say it again if these analysts had skin in the game, I would respect them a bit more. I would pay a lot of attention to their actions vs. what they say. These analysts are called "sell-side" analysts for a reason.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.