GoPro Inc (NASDAQ:GPRO) trades at a forward P/E of 14.78 and a PEG of 0.82, the cheapest valuation since the company’s IPO. Shares are off more than 50% this year as investors worry about commoditization and slowing earnings growth. Let’s examine the wearable sports camera company in depth and see how the smart money feels about the former high-flier.
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While GoPro Inc (NASDAQ:GPRO) trades at its cheapest valuation since the company’s IPO, cheap can get cheaper. Apple Inc (NASDAQ:AAPL), a high quality company with hundreds of billions in cash on its balance sheet and a robust ecosystem, trades at a forward P/E of 11.3, or 23% below GoPro’s current forward valuation. Investors don’t give hardware companies high valuations because their earnings per share have historically tapered off as lower priced competitors eat market share. With Xiaomi having not sold its Yi action camera in the U.S. and Europe yet, GoPro hasn’t faced the entirety of its competition and could see its earnings shrink as Xiaomi enters into those markets. GoPro’s earnings growth could also slow as the sports action camera market becomes saturated.
GoPro shares will rally if it shows its earnings are sustainable. The company has beaten analyst EPS and revenue estimates for three straight quarters and would aid the long case by continuing to beat estimates. GoPro’s new product launches will help. GoPro plans to launch the Hero 5, a camera that’s expected to be 50% smaller than the Hero 4 and offer the capability to capture 3D motion and images, in the early half of 2016. GoPro also plans to sell a quadcopter drone in the first two quarters of 2016 as well. With the consumer drone market still in its nascent stages, GoPro has a big opportunity. If management executes well, GoPro shares will reward its shareholders.