Pop Goes the GoPro Stock Bubble

It was just last week that GoPro (Nasdaq: GPRO) put in its all-time high. Now it’s pretty clear that the GoPro stock bubble has popped.
The stock touched $98.47 per share midday last Tuesday, a gain of more than 300% since its IPO in June at $24 per share.
The stock has perplexed traders for a while now. While the company has solid fundamentals and a 31% annual growth forecast from analysts for the next few years, its valuation completely surpassed any logic or reason.
I wondered in a late-September article how much higher it could go and wrote this:

As much as I believe GoPro is here to stay, I simply can’t justify recommending this stock as anything other than a speculative play.

Even at what seemed like ridiculous levels then, the stock rose an additional 25% between when I wrote that article and its all-time high less than two weeks later.
But alas, the bubble has burst.
The stock is trading down Wednesday by more than 8%, a decline of over 30% from the all-time high of $98.47 per share.
Below is a chart of GoPro stock with several key events labeled.

  • A – June 24: GoPro’s initial public offering (IPO). The stock opened at $24 per share and closed up 30%.
  • B – October 2: GoPro announced that its CEO and his wife will donate $5.8 million shares to their charitable foundation, using a loophole to end the post-IPO share lockup early. Shares fall almost 7%.
  • C – October 7: GoPro stock touches its all-time high of $98.47 per share and ends the day with its all-time closing high, $93.85 per share.
  • D – October 8-10: GoPro stock falls nearly 10% Wednesday through Friday after reaching all-time highs on Tuesday.
  • E – October 13: A rumor started by a journalist said to have been in touch with the family of Forumla 1 driver Michael Schumacher sends GoPro stock lower by almost 10%. In a coma since a major ski accident in late 2013, the reporter blamed Schumacher’s injuries on the GoPro camera mounted to his helmet at the time of the crash.
  • F – October 14-15: GoPro’s fall continues, down an additional 10% since the Schumacher rumor.

Is GoPro a broken company?
Certainly not. As I mentioned above, the company is still forecasted to grow by 31% annually for the next few years. More importantly, the film industry’s reliance on the company’s nearly-indestructible and high-definition cameras seems to only be growing.
And no, I don’t think the stock is down 20% since the Schumacher rumor just because of the rumor. Sure, it may have spooked investors. But stocks that are so disconnected from a reasonable valuation don’t need a good reason to fall back down to earth, they just need a reason. The stock was already down 10% before the rumor was spread.
GoPro doesn’t seem like a broken company but it does seem to be a broken stock.
When the company announced that the CEO and his wife were breaking the post-IPO share lockup early to donate shares to their charitable foundation approximately 40% of the shares outstanding were being shorted. Safe to say that no one knows where the bottom is for this stock.
Now that the GoPro stock bubble has burst we may finally see this high-flying stock trade based on its fundamentals and not the whims of momentum traders. But we’re not there yet and, if that happens, you can bet that we’ll be back with an article advising that the time is right to invest in this promising and fast-growing company.

The One Company Behind Every Smart Phone 

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