GoPro: Valuation-wise? Priced For Perfection

GoPro is flying high for now, but is a crash landing ahead?

GoPro is flying high for now, but is a crash landing ahead?

As the bull market continues to roar, video-maker GoPro Inc ($GPRO) recently went public and gained honors for being the largest consumer-electronics IPO in 23 years.

To be completely candid: the IPO is already off to a red-hot start and shares are up 100% in less than a week. The company went public last Thursday, selling shares at $24 and today’s closing price was $48.80.

goprograph

Investors are already upping growth forecasts and the current stock price implies extremely high expectations for this tech upstart.

But are these expectations realistic? To answer that question, I created a financial model based on GoPro’s earnings per share estimates.

The key question is: what level of earnings does GoPro need to generate in order to support the $48.85 share price?

For FY 2015: GoPro is anticipated to earn roughly $1.15EPS

Using a 5 year DCF model with terminal value, based on a discount rate of 13%, GoPro would need to grow earnings by 92% per year to support this stock price.

Is this possible? Sure, but it’s also highly unlikely, especially given that the company operates in the hardware sector, which is prone to commoditization.

While this company is a true innovator, I would avoid $GPRO stock for now, as the expectations are extremely lofty and will be difficult to live up to. For now, GoPro is definitely priced for perfection with no wiggle room for errors such as a poor earnings report.


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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