With the recent Gopro drop, is this a buying opportunity? or is it a warning signal of its correlations with the yuan's depreciation. There are people saying with Yuan's depreciation seeing as a confirmed mid-long term chinese monetary policy, the US businesses will suffer because of its strong USD vs the weakening of chinese yuan.
Theortically speaking, this makes senese because buyers are always looking for bargain with similar products. This will definitely hurt US exporters especially the ones who doesn't offer a competitive edge over their products.
However, it's not fair to criticize chinese manipulating its currency to gain a competitive edge over the other countries as china is facing deflationary pressure. As china's CPI is increasing less than expected during the first 2 months of the year at only 1.1%. According to the economist Cai Hongbin.
In fact, from the recent government effort of trying to fend off the short sellers and capital injection this coincide with China's more problematic economy: It is at the phase where it needs to have a structural reform, shifting from fixed asset investment driven economy to consumer spending driven economy, which will be a very long and painful journey.
Heading back to what we want to discuss is gopro's recent drop a buying opportunity? With Nicolas woodman snapping up the virtual reality company kolar and gopro's plans on making its own drone. I believe its revenue will be growing at even a faster pace when the products of the aforementioned areas are launched.
Under woodman's leadership, his visions and his quickness of getting into the drones market makes gopro continues enjoying high growth and with strong momentum. Of course the R&D will significantly rise but a high growth company putting money in R&D to make products with technologies that their rivals can't match is the right strategy and that creates the "economic moot" that Warren buffet said.
However, there are risks that Gopro needs to take into account. I believe the sell-off was a bit over-reacted but there is a reason behind it: with the US interest rates rising soon, US products become less competitive and the US businesses would have to be fighting at a "currency disadvantage". That's the reason why gopro extends their product line and to be on top of the game. As long as woodman continues to have this vision in the next 10-20 years I think Gopro will be a high growth company that enjoys a high gross profit margin from its products.
the gross profit margin is also impressive at an astounding 46.28% as of June 2015. I believe gopro's gross profit margin will be at 35-45% for the next three years to five years. Even though the chinese manufacturers want to compete with Gopro by lowering their price to cut-throat level, it is simply unsustainable and price wars always end up badly when their tech can't even match with their stronger rivals.
Disclosure: I am/we are long GPRO.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.