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Friday, November 24, 2017 12:10:49 PM
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GPRO:
......However, this also represents an opportunity. Because 2018 will turn out to be a new chapter for the company. For one thing, bloated inventories are a thing of the past. The company expects significant lower channel inventories in Q4. On the balance sheet, Q3 ended with inventories of $177M vs. $127M for Q2 and the company expects inventories to drop below the $125M-mark at the end of 2017.
The company remains focused on profitability, efficiency, lowering costs and execution. As a reminder, the company increased its cash sequentially by $47M to $197M, and expects to end 2017 with a cash balance between $225M and $250M. The company is also targeting double-digit growth and profitability for 2018.
The company said it expects to roll out several new products in 2018. Among them, new lower priced entry cameras and a replacement for the HERO 5. I am assuming these cameras will use the new GP1 chip, which means a robust competitive product vs. the competition.
Also among the new products to be introduced in 2018 will be a new Karma. I am assuming the Karma will also use the new GP1 chip, and will have all the bells and whistles the first generation Karma didn't have (and then some). This might also mean that 2018 will be the last year GPRO will be a customer of Ambarella (AMBA). And while the Karma is still less than 10% of GPRO's total revenue, I think the second generation Karma will sell much better, and will also have much better margins.
Another product in 2018 will be the Fusion 5.2K spherical camera that started shipping a few days ago. Although this is not expected to be a high volume revenue product, I nevertheless think that just about every professional athlete in the world will want to own one. Sales should kick in nicely in 2018 when OverCapture - the special software made for the Fusion - will be available in January.
So while there was a little revenue taken away from the holiday season by the early introduction of the HERO 6, nevertheless, the market is very short-sighted. Even if Q4 revenue has a shortfall of $50M vs. market expectations, 2017 and 2018 will be growth years for GPRO, and this is not priced in by the market.
BOTTOM LINE
While I have already made good money trading GPRO here and there, the big money will be made when the market decides it's time for the stock to trade at a much higher revenue multiple than the 1X multiple it's trading at today. When will that be? I do not know.
What I can tell you is that the company is doing everything right, and GPRO's stock has the ingredients for above-average returns over the next 12-18 months. cannot say how long GPRO's stock will trade at current depressed prices, or when short-selling algorithms will get what they deserve. But as long as the company executes as it did in 2017, it will happen. And when it does, GPRO's stock will surprise everyone.
My price target is still at least $20 a share over the next 12 months, and at least $30 per share if someone attempts to buy the company. Downside is extremely limited from current prices, so you might want to also sell puts.
———credited to SA’s Georg K.
FWIW GLA & Happy holidays.
THANKS FOR SHARING!
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