GoPro Inc. - Ordinary Shares - Class A

NASDAQ:GPRO   3:59:53 PM EDT
9.30
+0.13 (+1.42%)
4:10:14 PM EDT: $9.61 +0.31 (+3.33%)
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Why GoPro May be the Most Undervalued Growth Story in Technology

Fundamentals


##Symbol##GPRO

GPRO has done something almost every other young technology company has not been able to do, and that's turn a profit. In fact, over any twelve-month period, the company has never reported a loss. Further, the company invented a new product category for cameras ("action camera"). But there is so much more to this company and a wonderful angle on it that is has been totally discounted to this point. It's actually set to participate in the social media boom in a powerful and potentially viral way. Look out Twitter (TWTR), here comes GPRO?

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GPRO reported earnings on July 21st after the close and beat estimates handily with revenue of $420 million versus estimates of $395 million and EPS of $0.35 versus estimates of $0.26. the company actually blew out its own guidance. The company sold 1.65 million capture devices in the quarter, which was a 93% increase year-over-year. Further, while North American sales showed powerful growth at just under 40%, international growth rose well over 100%, with 183% growth in the Asia-Pacific region. International sales now represent more than half of revenue.



While the company's execution has been excellent, driving annual revenue to nearly $1.7 billion, fears have now crept in that Apple (AAPL) could replace GPRO's products altogether with new features for the iPhone cameras. Those who dismiss this possibility note that GPRO's products are extremely durable, waterproof and essentially indestructible, all because the product's have only a (small) camera lens to protect, rather than an entire smartphone screen. I love Apple (AAPL), but there's no way it competes in this market segment without a major pivot.

GPRO has some amazingly compelling phenomena going on internally that we can examine through the fundamentals which surround revenue and earnings highs along with large R&D investment (expense). But here's the really compelling turn of events. On July 23rd, live video-streaming app Meerkat announced a beta program that enables some GoPro users to live-stream their footage directly from their GoPro device. Meerkat competes with Twitter's (TWTR) Periscope and the added capability adds a wonderful social dimension to GPRO. In fact, earlier this year, GPRO launched a streaming channel on the LG Smart TV app and signed a deal with Vislink to enable broadcasters to live-stream GoPro content during big events (Source: MarketWatch).

Consider the incredible hardware sales that GPRO has demonstrated and then factor in a social media like growth potential and now we have a massively compelling bullish thesis.

Technicals   |   Support: 52.11   |   Resistance: 63.95   

Death Cross Alert:
The 50-day MA is now below the 200-day MA.
GPRO's -3.15% drop today is critical to its technical outlook.

Swing Golden Cross Alert: The short-term 10 day MA is now above the 50 day MA.

GPRO has a four bull (high rated) technical rating because the stock is trading above its 10-, 50-and 200- day moving averages and even though the stock is down on the day, the 10-day MA is above the 50-day MA (also called a "swing golden cross").

Here are the consensus estimates for next quarter. Note that last quarter's actual result is included at the far right.
EARNINGS ESTIMATES
Earnings Date EPS Revenue (Mean) Revenue (Median) Last Quarter (Actual)
2015-10-29 $0.22 $439 million $443 million $420 million M Provided by ZACKS


Let's look at the core elements that drive the company's fundamental rating.


Fundamentals Rating Summary



METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Revenue (TTM US$ Millions) 1,697 1,034

Operating Margin (QTR) 1.123 0.94 0.97 RISING

Net Income (TTM US$ Millions) 189 34 RISING

Levered Free Cash Flow (TTM US$ Millions) 156

Research and Development (US$ Millions) 58 35 17

Research and Development Expense/Revenue 0.139 0.142 0.094 FALLING





Stock Returns and Chart

GPRO is up +38.5% over the last three months and up +17.9% over the last six months. The stock price is up +46.8% over the last year.

Before we dig into the fundamental trends that drive the rating, let's look at an all-time stock chart with 10-day momentum (on the bottom).

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Now let's examine the visualizations of the critical financial measures.



METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Revenue (TTM US$ Millions) 1,6971,034


Revenue (TTM) is trending higher meaning that it has increased for at least five consecutive quarters and now stands at an all-time high of $1.7 billion. GPRO is not only growing revenue (TTM) by 64% year-over-year, but it's 4 fundamental (star) rating implies that the revenue acceleration is pushing the core fundamentals of the company forward. While massive revenue growth often times comes at the expense of earnings, free cash flow and operating margins, that is not at all the case for GPRO.

What do all these numbers mean?
GPRO's fundamental rating benefited these results:
1. The one-year change was positive.
2. The one-year change was greater than +20% (an extra boost to the rating).
3. The two-year change was positive.
Finally, the up trend (consecutive quarters) in revenue benefited the fundamental (star) rating.

Let's look at Revenue (TTM US$ Millions) in the chart below.


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If we take a slightly different view of revenue, and examine revenue per employee (in $million), we can see that GPRO crushes its competitors here as well. In the chart below we include all 27 technology companies with market caps between $4billion and $15 billion. We equal space them on the x-axis (rank them) and plot revenue per employee on the y-axis. GPRO is number one at $1.44 million of revenue generated per employee.


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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Net Income (TTM US$ Millions) 18934RISING


As revenues have risen, so have earnings. Net Income (after tax profit) over the trailing twelve months (TTM) for GPRO is up nearly 460% year-over-year. Now of course, some of that is just "small number math," but in any case, the company has never shown a loss (show me a growth tech company that can say that) and its earnings continue to explode to new highs.

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars. Note the green colored bar which indicates the all-time high.


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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Levered Free Cash Flow (TTM US$ Millions) 156


Levered Free Cash Flow (FCF) (TTM US$ Millions) is a critical determinant of stock price since market cap is the present value of all future free cash flows. GPRO reported an all-time $156 million in FCF. The limited data gives us less information than for most companies to really understand the trend, but if next quarter shows another rise in FCF and all other fundamentals stay on this track, this will be a five star company (the highest possible rating).

For our next chart we plot Levered Free Cash Flow (TTM US$ Millions) in the blue bars through time. Again, the green bar always represents the all-time high.



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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Research and Development (US$ Millions) 583517


Research and Development (US$ Millions) is trending higher meaning that for at least five consecutive quarters, it's been rising (in this case it's nine consecutive quarters). Several consecutive increases in R&D may be a sign of solid investment in the future (if costs are under control) and is generally a good sign that the underlying company has projects it wants to invest in. There is a tendency for some firms to slip stock based compensation expense into R&D which can be quite misleading. Note the trend in the chart below.

R&D is up 69% from last year's value of $35 million and up 250% from two-years ago. These are remarkable rises in R&D, yet the firm continues to hit all-time highs in earnings and FCF.

In our final time series chart we plot Research and Development (US$ Millions) in the blue bars. Note the rising bars from one-year ago and the last bar's color (green), which indicates another all-time high.


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Summary
GPRO just broke all-time high sin revenue, earnings and free cash flow, all the while investing at all-time highs in R&D. The sales growth rate is incredible, both in the establish North American market and even more so in the fast growing international market. The firm already gets more than half of its sales from abroad. But perhaps even more exciting, GPRO has leveraged its wildly popular hardware into a social media outlet. If we combine the popularity of its hardware with social media type viral growth, we may be witnessing a firm that is in the early stages of a massive growth cycle. And, unlike so many other technology companies, GRPO is actually turning a profit, and it has never turned a loss since going public. This company is one of a kind and crushing it.