Tuesday, September 9, 2014

* GoPro (GPRO) - Love it or Hate It, You Haven't Seen GPRO Like This (5 Charts)

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GPRO is trading $67.37, up 6.1% with IV30™ up 0.9%. The Symbol Summary is included below.

Provided by Livevol

Update: 9-24-2014

Provided by Livevol

As you will read in the body of the article, GPRO continues to rise and is nearing the upper end of the pricing per the option market.

GoPro, Inc., formerly Woodman Labs, Inc., develops hardware and software solutions to alleviate consumer pain points associated with capturing, managing, sharing and enjoying engaging content. The Company’s mountable and wearable cameras and accessories, which the Company refer to as capture devices, enable professional-quality capture and exceptional versatility.

GPRO is one of the most "made fun of" companies in the social media sphere ("camera on a stick"), but there are some fundamental measures that are impressive, factual but... we have no idea if they will continue.  One thing is for sure, as of this writing the firm has a market cap of $8.5B, the stock has more than doubled since going pubic, it has generated over $1B in revenue in the last twelve months, is investing in R&D and has growing gross margin %.  Further, inventory turnover is growing quickly and the option market is reflecting some elevated risk.

Let's start with the all-time stock chart, below.
Provided by Yahoo! Finance

The stock has been ripping since IPO, just no other way to say it.  Let's turn to some fundamentals with a huge caveat that this is a brand new public company, the history is limited and the risk is in the future.

Revenue  (TTM)
In the last four quarters total revenue (ttm) grew from $858M in the four prior quarters to now $1.03B (in the last four quarters). That's not insane revenue growth, but it's still robust. The firm is trading at ~8.5x sales right now.

Gross Margin %
This is a nice trend, gross margin % has increased from 34.4% to 40.1% over the last year as revenue has been increasing... that's always a very good trend for a company.

Research & Development over Operating Expenses
GPRO is investing heavily in R&D.  A year ago $0.08 of every dollar in operating expense went to R&D.  As of today, $0.11 per operating expense dollar goes to R&D.  The firm is certainly committed to pushing further into product development.

Inventory Turnover
"A ratio showing how many times a company's inventory is sold and replaced over a period.  A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying." - Investopedia.

In this case, it seems that GPRO is showing strong sales.

Net Income (Earnings)
The first phenomenon to note is that every bar is positive... GPRO has earnings... We can see the boom and then bust in the last three quarters, but for a company this young and investing so heavily in R&D, the bet for longs is not that net income will improve dramatically in the next quarter or two, but  rather the present value of all expected future free cash flows will grow substantially.

Of course, if that R&D spending from above yields poor results, then it's hard to justify an $8.5B market cap for a firm that has $35 million in earnings and shrinking.

Finally, the Options Tab is included below.  Here we can see the risk in the future stock price as reflected by the option market.

Provided by Livevol

Using the at-the-money (ATM) straddle we can see that the option market reflects a price range of [$59.50, $75.50] by the end of trading on Sep. 19th.

Using the Oct options, we see a price range of [$52.50, $82.50] by the end of trading on Oct. 17th.

Both of those ranges are pretty wide -- reflecting elevated risk in this stock... which makes sense...

  • If you believe the stock will be outside that range on expiry or any date before then, then you think the volatility is too low.
  • If you believe that range is too wide, and that the stock will definitively be in that range on expiration, then you think volatility is too high.
  • If you're not sure, and can make an argument for either case, then you think volatility is priced just about right.

This is trade analysis, not a recommendation.

Legal Stuff:
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