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GoPro: A Deep-Value Contrarian Buy, Or, A Ship Waiting To Sink?

|About: GoPro, Inc. (GPRO), Includes: AMZN, APPL, CSCO, FB, GOOG, INTC, MSFT, NVDA, S, SNE
Summary

Introduction to NYSE:(GPRO) and the company's current pricing, ventures, valuations, and recent developments. Including the inside sales by both the CEO and CFO of GoPro, Inc.

Review of recent trading volume over the past quarter, and which institutional investors are responsible for the buying/selling.

Insider Trading: Both CEO Nick Woodman and CFO Bryan Mcgee sold recently within 9 days (6 trading days) of each other.

Technical & Fundamental Analysis of GPRO stock from an unbiased perspective.

Concludes with my final highlighted sector comparisons that show how undervalued GPRO potentially could be in comparison to competitors, along with my conclusion the company will shape up in order to increase potential valuation in a hypothetical buyout, leaving me with bullish perspective.

Introduction:

GoPro, Inc. (GPRO) develops and sells cameras, mountable and wearable accessories, software, and other products until a recent announcement to discontinue drones -- referred to in this article below. The U.S.-based company offers HERO5 and HERO6, which are cloud-connected line of cameras; Fusion, a waterproof spherical camera; GoPro Plus, a cloud-based storage solution that enables subscribers to access, edit, and share content; Quik, a mobile editing app, as well as desktop app for editing options for power users; GoPro App, a mobile app that allows users to preview and play back photos and videos, control GoPro cameras, and share content; and Karma Grip, a handheld or body-mountable camera stabilizer that capture zero-shake smooth video. An innovative company. But one that at the current point in time, could use a closer look and technical analysis to better evaluate its future prospects.

The stock closed at $6.14 Wednesday afternoon, down $0.10 (-1.6%) on Wednesday, an unfortunate negative day to add to an otherwise positive weekly and monthly chart review. GoPro currently has a 52-week low of $4.00, with a 52-week high of $7.60. The firm has a current market cap of USD$913.51 million, a PEG ratio of 9.55x and a beta of 0.65. The company has a current ratio of 1.58x, a quick ratio of 0.99x and a debt-to-equity ratio of 0.66x.

Review On Recent GPRO Volume:

With large volume of the stock trading over the past 200-days, part in due to further increase of the company via hedge-funds, firms, and individual investors. Companies, such as SG Americas Securities, LLC, who have been increasing their stakes in GoPro by 87.2% over the period of Q4 '18, alone. According to its most recent filing reported by the SEC as public information. The institutional investor owned a total of 165,791x shares of the company’s stock -- after recently buying over the quarterly period an additional 77,249x shares during the quarter. SG Americas Securities, LLC. owned approximately 0.11% of GoPro worth $703,000 as of its most recent filing with the SEC. Something tells me that number is expected to grow considerably further, if it hasn't already since the new quarter.

A number of other hedge funds also recently bought and sold shares of GPRO. Marshall Wace LLP acquired a new stake in GoPro in the 3rd quarter valued at $16,679,000. Gilder Gagnon Howe & Co. LLC acquired a new stake in GoPro in the 3rd quarter valued at $15,571,000. Renaissance Technologies LLC increased its holdings in GoPro by 36.1% in the 3rd quarter. Renaissance Technologies LLC now owns 6,118,800 shares of the company’s stock valued at $44,055,000 after purchasing an additional 1,622,200 shares in the last quarter. Marshall Wace North America L.P. purchased a new position in GoPro in the 3rd quarter valued at about $3,798,000. Finally, Morgan Stanley boosted its position in GoPro by 48.5% in the 3rd quarter. Morgan Stanley now owns 1,404,411 shares of the company’s stock valued at $10,112,000 after buying an additional 458,907 shares during the last quarter. 42.35% of the stock is currently owned by hedge funds and other institutional investors.

Hedge funds and other institutional investors have recently added to or reduced their stakes in the company. Oppenheimer & Co. Inc. acquired a new position in shares of GoPro in the fourth quarter worth $44,000. Blueshift Asset Management LLC acquired a new position in shares of GoPro in the fourth quarter worth $47,000. Mirae Asset Global Investments Co. Ltd. acquired a new position in shares of GoPro in the third quarter worth $116,000. DekaBank Deutsche Girozentrale raised its holdings in shares of GoPro by 151.3% in the third quarter. DekaBank Deutsche Girozentrale now owns 16,109 shares of the company’s stock worth $101,000 after acquiring an additional 9,699 shares during the last quarter. Finally, Cambridge Investment Research Advisors Inc. raised its holdings in shares of GoPro by 55.2% in the fourth quarter. Cambridge Investment Research Advisors Inc. now owns 16,382 shares of the company’s stock worth $69,000 after acquiring an additional 5,829 shares during the last quarter. 42.35% of the stock is owned by institutional investors.

News On Insider Sales:

GoPro Inc (NASDAQ:GPRO) CEO Nicholas Woodman sold 1,400,000 shares of GoPro stock in a transaction that occurred on Friday, March 1st. The shares were sold at an average price of $5.94, for a total value of $8,316,000.00. The transaction was disclosed in a legal filing with the Securities & Exchange Commission.

Additionally, shortly prior to Woodman's sale in March and only 9 days (only 6 trading days) apart from each other, CFO Brian Mcgee sold 19,526 shares of GoPro stock in a transaction dated Wednesday, February 20th. The shares were sold at an average price of $6.04, for a total transaction of $117,937.04. The sale was disclosed in a document filed with the SEC, which is available through the SEC website.

Technical and Fundamental Analysis:

Aside from recent releases that have been relatively positive. 30-day and 90-day charts have been positive for the company. Maybe they simply were granted options and decided to sell some or all. To presume insider selling of the top two executives of a distressed company cannot be assumed to be any sort of nefarious act on their part without knowing the true reason, and they followed the guidelines of filing with the SEC prior to selling. So with that in mind, we need to look at other factors. Both positive and negative, to get a feeling as to why they would sell after giving the public such a positive outlook when speaking before investors and media just recently. See if maybe we can find any key data or negatively revised quarterly earnings expectation(S) since the loss GoPro will be seeing along with the certain loss of revenue from sales of the product and all accessories produced for the drones -- due to an executive and board-approved decision to completely discontinue manufacturing, innovating, and competing in the drone market, with one unanimous decision made to exit the drone market completely, siting issues with the industry and its competitors. Honestly, my personal opinion is that was simply a damage control statement made amongst others to make it seem they were exiting on their own terms. When in reality, the GoPro Karma Drone never met expectations. Production delays from the beginning. Programming issues and/or defective parts that led to recalls, losses, and a very negative market reaction considering the hype GoPro had originally put on entering this new, exciting market. But I simply feel the could not compete on the same level, and are making the right decision on dropping the project for now. I am disappointed it leads to 250 jobs lost across various divisions worldwide. But that too will help save the company money, which was another crucial part of their decision to go along with this. The ability to increase EPS, cut projects losing money, reduce overhead, and Nick Woodman even agreed to have his salary reduced as many CEOs have to just $1 per year.

When it comes to fundamentals, something you need to take into account more than anything to look for the answers, is the balance sheet. The health of a company is largely based on those precious numbers on a balance sheet, with the power to be able to crunch the numbers and determine if a company can survive and carry out all its financial obligations. Including keeping the faith and belief of its investors. If that is lost -- the company likely is, too.

For GPRO, the company has USD$152.1 million on their books in available funds, with USD$15.13 million currently as liabilities. The trend over time, however, is what investors should be more concerned about. The company has a healthy balance sheet as we've seen their debt profile has seen positive strides, clearly showing much better money management. With only USD$894.76 million in total liabilities, these figures quickly begin to add up to a happy ending and shows the company has more than a good sense of innovation and profitability for numerous reasons over the next few years.

An interesting market reaction we recently saw, was in CEO Nick Woodman's announcement that the company had plans of reducing its global workforce to fewer than 1,000 employees from 1,254. The news sent its shares plummeting, down as much as 30% in early-morning hours trading. However, they have quickly recovered, and as mentioned above -- have since shown positive indicators in short-term charts that make me feel the public has accepted that while nobody wants to see a company have to lay off that many people who are starting careers, raising families, or maybe not just quite to retirement, yet. But sometimes the sacrifice of the few to save the many is necessary, and I sadly have to agree with both management and the board on this that it was necessary and should be long in the past.

Additional GPRO Technical Comparison For Final Consideration:

- Average Consumer Pharma Sector P/E Ratio: 32.86x vs GoPro 0.81x

- Average GoPro Technology Sector P/E Ratio: 21.72x

- Average Technology Sector Price/Book Ratio: 4.71x vs GoPro Ration: 4.14x

- 2018 S&P 500 EV/EBITA Ratio: 12.98x vs GoPro EV/EBITA Ratio: 0.71x

Conclusion:

The name NYSE:GPRO was powerful 5 years ago ... Nowadays, from taking the market by storm in its newly successful market inception of the first ever conceived 4k action-packed 'Hero' camera and accessories, reaching over $1 billion in sales shortly after launch. From excessive growth out of the gate, GPRO seems to have been on a rather different, downside path. I appreciate their decision to finally cut the fat and ditch losing battles, such as trying to succeed in the drone market. And while I absolutely hate to see layoffs, further savings indirectly due to the layoffs, with a few extra million in additional savings by CEO Nick Woodman accepting a reduced salary to $1, a sentimental play, in my opinion, to the workers it hurt to have to let go. If he cannot afford to pay them and keep them on. He should not see more then $1 until GPRO sees real results and, while the majority consensus in the media and commentary has been negative, believe the company has a chance of recovery. Or could have considerable value to numerous tech giants that, an acquisition this size, would be pennies and bring with it both product & software that can be integrated into their other business, as well as the talent they could retain and use for both integration and growth in other areas. Confirmation of the company reaching out to various companies in regards to a potential sale tells me you can at the very least, enjoy the ride as they cut costs and any non-profitable venture over the next year and make their books much more appealing to companies that would buy them, such as Google (GOOG), Apple (OTC:APPL), Facebook (FB), Amazon (AMZN), NVIDIA (NVDA), Microsoft (MSFT), Sony Corp (SNE), Cisco Systems (CSCO); While not a growth stock, def the money to absorb such a cheap asset and expand into new industry, Intel Corp. (INTC). Honestly, the list could go on forever. The point is, there are world tech leaders out there with excellent Q4 '18 reports recently and have considerable cash reserves. My ultimate result is that this ends in an acquisition, and you could easily enjoy riding to analysts consensus target of $7/share (mine being $7.50 short-term/$18.50 long-term) until the company is absorbed at a multiple which will only further your returns, or, for tax reasons could convert your ownership of the acquiring company into their stock as payment.

Personal Recommendation: Buy (Upgraded from Hold)

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in 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.

Additional disclosure: I am not acting in the capacity of a CFA and ask that all readers, followers, and investors do their own due-diligence before acting.