It's ironic that investors continue to watch financial news networks and read numerous blogs in search of the next greatest investment opportunity in the market, when the answer to what they seek is staring them straight in the face, or directly in the eyes for that matter.
Professional investors are already all over this sector, and they are actively filling their portfolios with as many shares of "action camera" (AC) and VR companies as they can afford. Their secret, though, only gets let out of the bag once these stocks have already benefited from high double digit, or even triple digit gains. Then, they happily get rotated into retail hands at much higher valuations. But, retail investors can benefit now, as well....they simply need to know where to look.
Remember "plastics", the high-flying sector that was pitched in The Graduate in 1967? Well, depending on the generation, some will, and they know that the market is still focused on these transformative innovations. If you are a savvy investor, you should also acknowledge that paying attention to buzz words is still very much in vogue. And for those looking for a tip, and a sure way to potentially make significant money over the next five years, then here are two buzz words that you need to know: "Virtual Reality".
Most people are probably well aware of the term, Virtual Reality, but, as far as considering the technology as an investment opportunity, most don't give it a second thought. Although VR is not exactly rocket science, it does come pretty close in how it can amaze and mesmerize a user. For those that have not had the opportunity to witness a VR simulation, head down to your closest mobile phone outlet and ask for a demo. Once you take the test view, you'll be hooked.
As a quick tutorial, VR technology uses a computer-generated simulation of a three-dimensional image or environment, that can allow a user to interact in a seemingly real or physical way by using special electronic equipment, such as VR goggles or gloves fitted with sensors. To address this booming market opportunity, companies are developing a host of products, inclusive of 360 VR action cameras, user apps, and dual lens VR goggles, all of which allow a user to enjoy a seamless, high-quality VR experience.
Now, once you realize that the technology is for real, and is only going to grow exponentially over the next five years, finding the best opportunities for investment consideration becomes a race against time, as institutional investors are actively gobbling up shares and driving undervalued and under the radar stocks considerably higher. But, don't despair, there are still companies that may offer tremendous value to investors that are looking to get into this prolific market. A couple of these you may already know, but for some, an introduction is in order.
Sifting through a number of both action camera and VR stocks, and based on current valuation and market potential, here is a Top 3 list for 2017:
Monster Digital (NASDAQ:MSDI)
Certainly, the stock with the lowest market cap on the list is Monster Digital. This stock is currently trading at about $1.30 a share, not because the technology is not cutting edge, but because the company is still essentially unknown in the space.
Irrespective of their limited investor attention, MSDI already has considerable market placement, with their line of 360-degree action cameras, VR goggles, and unit accessories already being sold in over 24 retail and wholesale chains on a global basis. MSDI raised cash in a re-IPO in the fourth quarter of 2016, and now sits positioned to take advantage of a sizzling market. With approximately $8 million in cash and only 7.8 million shares outstanding, MSDI's capital structure is already well suited for near-term growth.
MSDI can go head to head with anyone in the sector, and despite the fact that their products cost roughly 30% less than others in the space, there is absolutely no compromise in technology or quality. MSDI is marketing four quality action cameras and a suite of VR equipment: a 720p camera that retails at $79.99, a 1080p+ camera that retails at $129.99, single lens VR goggles for $199.99, and a duel lens VR set priced at $379.99.
For those that allow the price to determine quality, paying more for the same experience may provide psychological benefit, but from a quality and performance standpoint, consumers may not always get what they pay for. Based on reviews, any of the action camera products from MSDI can be reasonably compared to the $399.99 GoPro Hero 5, which costs about 30% more than a comparative MSDI camera but does not provide much, if any, quality or convenience benefit from the device. Nikon, as expected, has also entered a contestant into the 360, VR camera market, with a base product starting at $499, but their entry does not include many of the accessories necessary to capture the true VR experience. MSDI products do.
Along with the pricing advantages offered by MSDI, the consumer also enjoys additional benefit with their purchase, including upgraded memory, camera accessories, and mounts to facilitate variable uses with each product. This inclusive feature is what makes an MSDI product an attractive buy. They provide more value for less money. And, performance is not compromised.
While MSDI is currently penetrating the consumer retail market, the company has high aspirations of taking advantage of a lucrative military and law enforcement market, with its ruggedly designed 360 action camera. The newly developed 360 action camera will not only diversify the platform, but will provide clients with the ability to record in a complete 360-degree perspective, becoming a key tool in offering safety and security in the home, law enforcement, and military surveillance situations. The commercial grade design offers distinct competitive advantages over existing 360-degree cameras, and MSDI may enjoy some relative market exclusivity while competing brands hurry to upgrade their devices to meet the needs of changing personal and industry standards.
With industry peers valued significantly higher on a trailing revenue multiple, combined with the fact that MSDI is well managed and has a well-fortified balance sheet, this company may provide the potential for highest returns on the list, and is a perfect stock for an aggressive investor looking for undervalued stocks in the VR and action camera sector.
While many investors may have thrown in the towel on this one-time high flier, investors may be wise to consider the opportunities still in front of GPRO. While management is certainly guilty of taking their eye off of the ball and failing to capitalize on a market that they could have dominated for decades, management appears to have regrouped their sanity and is intent on bringing back shareholder value.
Focused on preserving operating capital, several analysts are predicting that GPRO may now be about two years away from achieving breakeven financial results. GPRO simply took its focus from what it knew best, action cameras, and, for some reason, decided that they should promptly diversify to attack "potential" market opportunity. What GPRO failed to understand is that they were still several years from building an impenetrable fortress around their action camera business, and once they allowed competitors a reasonable opportunity to strike, it became too late to respond. Instead, GPRO dedicated a lot of resources into the emerging drone sector.
The decision to focus on markets outside of their specialty has been costly, with GPRO stock losing billions in market cap, recently closing at $8.57 a share, down about 50% from its 52-week high and well over 200% from all-time highs. But, for aggressive and patient investors, taking a position in GPRO may not be an entirely bad idea for those investors with a long-term investment horizon.
While their days may be over as the dominant player in any one specific sector, the company may be able to regenerate itself, in Terminator-like fashion, by taking advantage of supporting market opportunities, like mobile applications and hardware development. But, if apps are going to be their future, they best make sure that they are the best at what they can do, with companies like Facebook (NASDAQ:FB) and Google easily able to produce competing app's to take advantage of an emerging market opportunity.
Even though FB and GOOGL can become fierce competitors once they smell blood in the water, that does not mean that GPRO can't at least carve a profitable niche in the app world, with both Capture and Quik, the GPRO apps that are designed to make editing and content sharing easier for its customer base. Critics have not been expressly positive about Capture, however, the Quik app is gaining its fair share of supporters.
Quik was acquired by GRPO in 2016, and its user-friendly interface allows users to take both video and image content and edit it into video format, which can then be shared amongst many digital platforms. For GPRO users, it's a useful app and may gain revenue traction if the product reviews remain complimentary. Beyond the use for just GPRO, though, management believes that Quik may offer additional opportunities to deliver revenue.
GPRO recently announced a partnership with Huawei that will make Quik the primary video editing app on Huawei's P10 and P10 Plus smart phones. Although terms are ambiguous as to how much money can be earned from this partnership, GPRO believes that the placement will allow the company to proliferate its technology on a global basis, opening the doors to increased global exposure and sales of its compatible products.
And, then there is the drone business. Okay, GPRO may have made a shortsighted bet on how well they could perform in this highly competitive market, but, if investors are willing to provide the benefit of the doubt that GPRO may do reasonably well, GPRO's share price may benefit and trend higher.
Since 2015, GPRO has been intensely focused on incorporating their AC technology into the "drone" business, and while the seeds from that endeavor have not yet created shareholder value, perhaps the fruits will soon appear. While most are not expecting GPRO to return to the glory days, the company can position themselves to gain sizable percentage gains in the stock, especially if the company provides even a hint of market traction. The share price at the time of the drone announcement was at roughly $24 a share, and since, the stock has lost significant value.
With that said, though, most investors don't see this company going to zero and the IP portfolio, as well as the brand name itself, should hold significant intrinsic value if the company ever puts itself on the auction block. At $8.84 a share, there is a huge opportunity for high double-digit gains on either a collaborative agreement with a large AC, VR or drone player or from a sale of the company. In either case, 2017 may be a ripe year for investors to realize significant gains from current share price levels.
While investors may hate this pick because of its high current price tag, leaving out Google would be like ignoring the 1000 pound gorilla in the room. Yes, the share price is psychologically high for retail investors, but we are talking percentage gains here, and a $872 stock moving 20% is no different than a $1.00 stock moving 20%. If the company merits the appreciation, it gets it, plain and simple. And for a stock like GOOGL, when investors get behind it, regardless of its size, shares get bid up quickly.
GOOGL is no secret to the VR world. Starting with its cardboard VR accessory, the company has been making tremendous strides in bringing VR mainstream. And while GOOGL clearly benefits from its own efforts, the trickle down effect to companies like Monster, Sony (NYSE:SNE), Samsung and others can also be substantial.
Of all the major VR companies, especially equipment manufacturers, GOOGL has the purse to quickly generate opportunities that are out of reach to others. Utilizing its Android access, GOOGL can attack multiple areas of the VR world, from games and security to military and law enforcement applications. GOOGL has the additional muscle to secure deals with major content partners, and is demonstrating that ability by inking deals with the likes of HBO and Lions Gate (NYSE:LGF.A) (NYSE:LGF.B), as well as overseas ventures that bring additional value to their VR push.
Here's the good part. Unlike most industries, where competitive pressure is designed to force others into submission, the growth of the VR sector is dependent on many companies providing complimentary technology, in an effort to build out an infrastructure that can benefit everyone. For GOOGL, if any certain company becomes a threat to their plan, they can simply gobble them up, as the anti-trust laws are unlikely to interfere with the advancement and consolidation of the industry. So, for now, everyone in the sector is behaving nicely on the playground. And, for emerging companies, like MSDI and others, being a nuisance may become a profitable scenario for investors.
More than offering just a headset and supporting device, MSDI, GPRO, and GOOGL are each set to capitalize on a market that will generate over $33 billion by the year 2022, according to published industry data. Each company has distinct and specialized products, and each is well positioned to take advantage of a prolific market that has ample opportunity in a number of different directions.
While each stock has its own profile and a vastly differentiated valuation, there is no doubt that room exists for each to gain significant traction in the coming months, specifically related to AC and VR technology.
And, while people are having a great time stepping into another world through the technology of VR, the opportunity to make money in this world, through MSDI, GPRO, and GOOGL, may be a distinct and opportunistic, real world investment reality.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in MSDI, GPRO over 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.