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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

GoPro

May 4th 2015

GoPro
NASDAQ Symbol: GPRO
Industry:  Digital Camera
Price as of 5/1: $49.98

 

The first four months of the year are in the books. The S&P 500 advance to 0.9% for the month of April, improving its year to date returns to 1.3%. The Nasdaq Composite ended the month up 0.8% rising 4.3% for the year, the best U.S. index by far.  The Russell 2000 was acting great, but a 2.6% decline in April has reduced the year to date returns to just 1.3%. The Dow has gone nowhere to start the year up just 17 points. Adding Apple to the Dow hasn't helped yet, but will. Dropping AT&T from the Dow allowed savvy investors to pick up a blue chip stock with a great dividend on the cheap. The stock is up 4% since we highlighted it a month ago. IBM is up 8% since we featured it just two weeks ago. But going forward, its going to get tougher and tougher to find appreciating stocks. Today is the first day of selling in May and go away. The next six months are traditionally much weaker than the six months from October to April. August and September are traditionally the two weakest months of the year and we still haven't had a 10% correction since 2012. The chances of getting a better buying opportunity in the coming months seems to be growing. With earnings seasonal almost over, the earnings have been good enough to prevent a major sell off. The oil companies are reporting earnings that are less than half of 2014 earnings, yet the stocks are rebounding. Keep your fingers crossed for that sector. To make money going forward it might be wise to focus on company's beating earnings estimates and guiding numbers higher. This week we'll highlight one such company, GoPro. The digital camera favorite for extreme sports athletes was a highflyer last year coming public around $30 and running up to $100 by September. However, with most highflyers, the stock came right back down. But this year, the stock is looking more constructive and with better than expected earnings and raised guidance, the stock looks to have the momentum to keep moving in the coming months.

As mentioned, GoPro reported earnings this week posting quarterly revenue of $363.1 million, a 54% gain year-over-year. The result beat analyst forecasts of $341 million in sales, according to FactSet, making it the fourth straight quarter of exceeding Wall Street expectations since the company's June 2014 IPO. GoPro's profits improved 52%, to $16.8 million or 13 cents per share. That's still a far cry from the $122 million in profit the company posted in the previous quarter (on $634 million in sales). But that blockbuster report came as a result of a particularly successful holiday retail season that produced record revenue and profits for GoPro. The good news is more than half of its first-quarter revenue came overseas, with sales from markets across Europe and Asia up 66% in the most recent quarter. The better than expected guidance was largely due to overseas sales. GoPro's cameras account for all five of the top five products in the combined digital camera and camcorder category. GoPro is also the leader in accessory unit sales with 7 of the top 10 selling accessories. GoPro is also starting to expand beyond extreme sports. A recent survey indicated almost 50% of the respondents are using their GoPro for making family videos, further evidence GoPro is increasingly becoming part of documenting every day of your life.

After an 11% rally last week, GoPro isn't as cheap as it was, but the fundamentals and the outlook are improving. Currently the stock trades for 30 times earnings and 26 times next year's earnings. Not cheap, but the estimates are going higher. The stock also trades for 3 times sales, generating nearly $100 million in cash of which half is free cash flow and no long term debt. Following earnings, the analysts warmed up to the stock with upgrades and price targets of $56, $65, $66, & $76. The stock is not cheap, but looks to have strong momentum going into the spring and summer season.