Coffee Sipping Big Board Stocks

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GoPro's Extreme Maneuver

MARKETWATCH 2:01 PM ET 09/18/14

Symbol Last Price Change

AAPL 101.781 +0.201 (+0.2%)
GPRO 66.59 -0.63 (-0.94%)
GOOG 588.18 +3.41 (+0.58%)
QUOTES AS OF 03:40:17 PM ET 09/18/2014

Investors seem to love new gadgets. Apple(AAPL), for instance, has seen its stock jump more than 34% in six-month period leading up to Friday's iPhone 6 launch.

Then there is GoPro(GPRO), the best-selling video-camera brand in the U.S., according to NPD. The company has said nothing of its next release--aside from Chief Executive Nick Woodman calling it "a big one." Investors have taken him at his word, bidding the stock up nearly 80% since he made that statement at an investment conference last month.

That sets up a high level of risk for a stock that was already pricey by most measures. GoPro(GPRO) was trading around 42 times forward earnings after the stock dipped in early August. It is now at around 75 times. That has spooked even the more bullish voices on Wall Street. J.P. Morgan(JPM), which led the underwriting for the company's IPO in June, downgraded GoPro(GPRO) to a "neutral" rating earlier this month, citing the high valuation.

If the past is any indication, GoPro(GPRO) should enjoy a strong holiday season if it releases the expected Hero 4 camera next month. Last October's launch of the Hero3+ boosted fourth-quarter unit shipments by more than 40% year over year and helped the company deliver record sales and profits for that period. A strong forecast earlier this month from Ambarella--which makes the chips used in GoPro's(GPRO) cameras--has firmed belief in a fourth-quarter launch for the Hero 4.

A holiday season launch also is implied by current estimates. Wall Street is looking for revenue to jump by 37% year over year for the fourth quarter. But even a big rollout may not justify the valuation. For instance, adding 25% to Wall Street's estimates for the next four quarters would still leave the stock around at 60 times forward earnings at its current value.

Some believe GoPro(GPRO) is worth a huge premium due to plans to build a media business around the content captured by its cameras. But that is still in development, and could take a while to scale. Even Google(GOOG)'s YouTube(GOOG) business took a few years to build up a significant revenue base off user-generated content.

Meanwhile, even if GoPro's(GPRO) rumored new camera sizzles, the stock looks too hot to touch.

-Dan Gallagher; 415-439-6400; [e-mail]

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09-18-141401ET
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