GoPro, Inc. (GPRO) shares plummeted 4.2% on yesterday’s closing after an analyst at Piper Jaffray downgraded the company’s rating from Outperform to Neutral. The primary reason cited for the demotion is valuation. Although the analyst is confident about the long-term prospects of GoPro, the current valuation reveals that the company has scope for limited upside.
However, GoPro shares had rallied marginally on Oct 7, after Barclays raised the target price for the company – although the rating remained Neutral.
This is the second major share price decline for the company, after the 15% drop witnessed in Aug 2014 following the second-quarter earnings announcement. The previous downfall was led by lack of clarity on the company’s revenue potential from its video offerings and typical volatility in the shares of a company that just had its IPO, despite reporting strong year-over-year earnings and revenue growth.
Uncertainty
This portable video camera maker has had quite a bumpy ride since its listing on Nasdaq. Although the company’s business seems to have good potential, analysts have always raised questions about the performance of this Zacks Rank #3 (Hold) company.
GoPro’s existing competitors like Sony Corp. (SNE) have posed considerable threats as tech giants such as Apple (AAPL) and Google (GOOG) are also foraying into the company’s niche segment.
In Jul 2014, analysts at Barron's anticipated that smartphone manufacturers would soon integrate the company’s cameras into mobile gadgets. This has come true partially as leading smartphone maker HTC has recently unveiled its new Re, the portable waterproof camera that will compete directly with GoPro.
Conclusion
GoPro has always been in the news for its stock price volatility brought about by the frequent recommendation changes made by analysts. While GoPro does have a sound business model, the company’s size, limited scope for differentiation and constantly increasing competition have increased uncertainty about the shares. As a result, the company’s shares tend to respond strongly to analyst opinions.
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