By Larry Darrell Published: July 11, 2014 at 4:12 pm EST
GoPro Inc. (GPRO) is down more than 6% today, with 6.5 million shares having changed hands in comparison to its average volume of 24.2 million shares since its trading debut on June 26, 2014. The maker of high-definition cameras has had a volatile journey in the past 15 days, reflecting investors' confusion over the company's valuation. Currently, the company is trading at 50 times its next-year earnings, higher than Garmin Ltd.'s (GRMN) 19.2x, and Nikon Corporation's (NINOY) 12.6x.
Earlier this week, Vertical Group initiated coverage on the stock with a 'Sell' rating and a price target of $28.5. Many analysts are concerned about the company's valuation, saying it is too high for a consumer electronics company. The last consumer electronics company that went public in the US was headphone maker, Skullcandy Inc. (SKUL), in 2011. Currently, Skullcandy is trading at a one-year forward price-to-earnings (P/E) multiple of 25x.
Dougherty & Company LLC has a Buy rating on GoPro. Analyst Charlie Anderson estimates 15.9% growth in earnings over the two-year period from FY14 through FY16. The company's revenues are expected to increase to $1.5 billion by 2016. In 2013, it had generated revenues of $985 million.
The company does not aim to remain a hardware maker only even though it sold 3.8 million cameras in 2013. Sooner or later, there will be cheaper alternatives available for its products. With that vision, the company expects to become a media company by producing original content as well as aggregating user-generated videos to earn advertisement revenues, which will be initially negligible, but will become significant in the future.
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