a concept stock
I’ve watched GPRO from the sidelines since it went public in mid-2014 at $24 a share. It’s the maker of the HERO line of wearable cameras for self-recording sports action.
The stock peaked at close to $100 a share in October 2014, amid discussion that the real value of GPRO was not in the devices themselves but in the potential for creating a YouTube-like video sharing network that could, Wall Street proponents thought (and wrote), add billions of dollars to the company’s market cap.
a long fall
The stock closed regular trading yesterday at $14.61 (!), up a penny from the day before. According to Reuters, of the 20 analysts that cover the company ten are still bullish and eight neutral.
last night’s bad news
After the close, GPRO announced that the seasonally most important fourth quarter sales would fall 14% below the company’s prior guidance. As I’m writing this trading in New York has just begun and GPRO shares are down about 19% at around $11.70 and are trading at a little less than 10x trailing earnings.
What has changed since GPRO was a $100 stock?
It’s not the company, although one might quibble that management must have known that 4Q15 would be problematic at least a month ago.
No, GPRO is still the same one-product niche firm whose chief protections from the predatory urges of much larger consumer products firms are:
–its first-mover advantage and
–the presumption that its target market is too small for the big boys to be interested in.
Yet that relatively thin story was worth 80-90x anticipated 2015 earnings in late 2014 and only 10x actual earnings now.
What’s changed is the tone of the stock market. It was bullish/speculative in late 2014, meaning that market participants factored good news into stock prices and ignored bad–at times concentrating on the lipstick and ignoring the pig. Today, buyers and sellers are much more alert to possible bad news and less interested in dreaming about how profitable the long-term future may be.
I don’t think the the more sober tone has much to do either with oil or China. I think it’s all about preparing for a higher interest rate world. Yes, to my mind, the market has now gone a little bit overboard on the negative side. Still, I don’t expect a change in mood any time soon, maybe not until we’ve had one or two more interest rate hikes.
The lesson I take from GPRO, and the main reason I’m writing about it today, is that we should look long and hard at any stocks we hold where the main virtue is the long-term concept/story. For a while at least, the market’s driving force will be PE, not the dream.