Vetr Blog

Crowdsourced price predictions for the stock market.

GoPro ($GPRO) – Still Overvalued, or Resuming the Uptrend?

Seeing a GoPro ($GPRO) action camera affixed to the hood of a cab on Madison Avenue last week, we were reminded of the old Wall Street adage that says once you hear about a stock in a New York taxi, it’s probably time to sell it. it got us thinking about whether the same goes for$GPRO.

Shareholders of $GPRO have done extraordinarily well since the company’s IPO in on June 24th, with the stock tripling to a high over $98 earlier this month. And there is no doubt that the company’s products have completely revolutionized the video camera market, creating an entirely new genre of media in the process.

However, the stock’s rapid rise to an extremely high price also meant an extremely high valuation, leaving it very vulnerable to any shift in sentiment. Accordingly, the general correction that roiled the stock market earlier this month hit $GPRO right between the eyes, slicing a whopping 34% off the stock in two weeks. Yesterday, the company recovered over 6% to end back near $70, the result of a Wedbush recommendation, short-covering, and probably more than a little bottom fishing ahead of third-quarter earnings from folks who were justifiably hesitant to buy the stock at its prior heights.

The question facing investors now is simple. Is $GPRO’s correction a chance to get a rapidly-growing company on sale, or is it the first step in a series of saw-tooth moves back down to more reasonable valuations?

Is it a good company at a bad price, or a great company at low price?

The answer is not so simple. There is no doubt that $GPRO’s business is impressive, boasting 38% quarter-over-quarter revenue growth, a dominant market position, a strong business model and a very loyal, young and enthusiastic customer base bent on recording (and sharing) their most death-defying activities from every conceivable angle. Moreover, $GPRO has become a Wall Street darling, a characteristic which can never be underestimated when analyzing whether a stock’s valuation is justified. Indeed, until the recent slide, shares of the company had been notoriously difficult to borrow in order to short, setting up squeezes throughout the fall and enhancing the company’s reputation as a momentum play. Potential monetization of the company’s content, which is consumed by far more people than actual owners of the cameras, has believers dreaming of significant future revenue streams.

On the other hand, at the moment GoPro makes cameras. It makes innovative, high quality, mobile cameras, and has carved out an enviable niche in an otherwise staid industry, but at the end of the day, it is still a camera company. It’s not a lifestyle company, despite the marketing, nor is it (yet) a media company. Significant competition is inevitable, and if this year’s CES is any guide, it will come from the likes of Nikon and Canon ($CAJ). Even assuming $GPRO hits the average 2015 EPS estimate of $1, the stock is still trading for a whopping 70x earnings, 8x sales, 126x book value and a PEG ratio of over 3. It’s super expensive by any measure you care to use. At the same time, a large amount of restricted stock owned by insiders at the time of the IPO will unlock at the end of December, potentially sending a wall of supply into the market during the critical holiday sales season.

$GRPO is among the most-watched stocks on vetr.com, with 23 active ratings and 51 followers. Interestingly, the ratings are almost exactly split down the middle between buy and sell ratings, perhaps in keeping with the debate currently raging about the stock’s prospects. For old hands in this business, $GPRO is undoubtedly reminiscent of the internet darlings that rose day in and day out during the technology bubble, only to crash downwards once overall market sentiment soured. One of the lessons from that era, however, is that most bona-fide businesses – $CSCO,$AMZN$AAPL, etc. – survived to fight another day.

What do you think? Is $GPRO headed lower as price catches up with valuation, or will the stock’s momentum return backed by rapid growth and future revenue potential? Make a rating!

Disclosure: At the time of this writing, Vetr had no position in the equities mentioned in this report.

Amazon’s Drop: Buying Opportunity or Warning Sign?

Investors old enough to recall when Amazon ($AMZN) first appeared on Wall Street 17 years ago will also remember that the company’s business model – freely admitted to, at least at the time, by CEO Jeff Bezos – was selling dollar bills for ninety cents. It sounds ridiculous, but it was really that simple – volume was supposed to make up for investing massive amounts of money into what has proven to be a trailblazing online commerce model. And it has worked to a surprising extent – the company has eradicated the whole brick-and-mortar bookstore thing, and from time to time investors have profited handsomely by buying the company’s stock.

However, today was not one of those times. Even before today’s nosedive, set off by the release of a massive third-quarter loss and a tepid (at best) forecast for the holiday season, Amazon has had a rough year. After rising four-fold between 2010 and the start of this year, the stock is down roughly 30% since January.

Meanwhile, there’s a new online-retailing game in town, Alibaba ($BABA) competing for investor capital and potentially offering exposure to a significantly larger number of consumers. On the other hand, Amazon has redefined the shopping experience, was wide moats around its business, and has embarked on a number of strategic initiatives that should result in strong revenue streams over the next few years.

The bullish case for $AMZN is that investors are impatient, tend to throw babies out with the bathwater, and have overreacted to the Q3 numbers, thus making the decline this year a chance to get a fantastic company on sale. The bearish case is that the third-quarter results – and the company’s expectations, at least for now – indicate a company struggling to stay ahead, thus suggesting $AMZN may go much further south before it stabilizes.

$AMZN is one of the most popular stocks on vetr.com, ranking 8th in popularity on our users’ watch lists. It’s a poster child for the entire Internet sector. What do you think of today’s action? Is the stock a buy at these levels, or is it headed further down? Make a rating!

Disclosure: At the time of this writing, Vetr had no position in the equities mentioned in this report.

Is Falling Oil A Bad Omen For Stocks?

While using www.vetr.com earlier today, we noticed that oil was down while the rest of the market was more or less universally up. Today was the first time in several sessions that these two went in opposite directions , and it got us thinking about the popular claim that a dropping oil price was a negative indicator for equity markets. Is it really justified to sell stocks just based on a falling oil price?

On the face of it, the market has seemed to think so. The steep decline in oil that started a few weeks ago has been blamed for sparking the recent correction in the equity market. But taking a more macro view, a lower oil price is generally considered to be a good thing for the broader economy, as everything from manufacturing inputs to transportation costs go down. It may not be the harbinger of doom many seem to believe.

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Some analysts have been quick to point out that slumping oil prices could mean slumping demand, suggesting the global economy is slowing down. But this assertion is not borne out by facts – nominal GDP growth in the U.S., Europe, China and Japan is solidly positive, and economic fundamentals, including interest rates and inflation, remain supportive. Supply, on the other hand, has increased as U.S. shale has entered the market in size, and a rising U.S. dollar has pressured the price.

On the contrary, oil bear markets seem to be positive for stocks. Although oil is down nearly 30% since September of last year, stocks (as measured by the S&P 500) are up nearly 20% – including the dip of the past few weeks. And historically, a decline in oil bodes does not necessarily bode ill for the stock market – surveying 26 bear markets in oil since 1990, stocks rose through roughly 65% of them.

And leaving the broader market aside, what about oil stocks? Unsurprisingly, bear markets in crude often contain the seeds of their own reversals, as the lower price spurs economic activity, which, in turn, spurs greater demand for oil. A few quarters down the road, oil stocks tend to put up comparatively good numbers. This has created a healthy debate about where oil and oil-service stocks are headed.

What do you think? Are $SLB$HAL$CVX$XON$BHI, etc. oversold and destined to be significantly higher down the road, or does the falling oil price mean they have further pain in store for their investors? Rate them!

Disclosure: At the time of this writing, Vetr had no position in the equities mentioned in this report.