Wed Dec 16 2015
Live Index (1451 articles)

Don’t Bet on a GoPro Buyout

.facebook{ font-size: 13px; border-radius: 2px; margin-right: 4px; background: #2d5f9a; position: relative; display: inline-block; cursor: pointer; height: 41px; width: 134px; color: #FFF; line-height:41px; background: url(http://www.thetradingreport.com/wp-content/plugins/big-social-share-buttons/facebook.png) no-repeat 10px 12px #2D5F9A; padding-left: 35px; } .bssb-buttons > .twitter{ font-size: 13px; border-radius: 2px; margin-right: 7px; background: #00c3f3; position: relative; display: inline-block; cursor: pointer; height: 41px; width: 116px; color: #FFF; line-height:41px; background: url(http://www.thetradingreport.com/wp-content/plugins/big-social-share-buttons/twitter.png) no-repeat 10px 14px #00c3f3; padding-left:37px; } .bssb-buttons > .google { font-size: 13px; border-radius: 2px; margin-right: 7px; background: #eb4026; position: relative; display: inline-block; cursor: pointer; height: 41px; width: 116px; color: #FFF; line-height:41px; background: url(http://www.thetradingreport.com/wp-content/plugins/big-social-share-buttons/google.png) no-repeat 10px 11px #eb4026; padding-left:37px; } ]]>

After having a stunning IPO, shares have GoPro (NASDAQ:GPRO) have fallen considerably over the last few months. GoPro went public at $ 28, and shares shot up as high as $ 92. However, over the last few months, shares have followed a consistent downward trajectory and are currently trading at nearly $ 17.5.

With the stock down significantly, many investors have been speculating that a buyout is in the cards. Investors believe that the likes of Apple (NASDAQ:AAPL) or Google (NASDAQ:GOOGL) will buy out the company at the “beaten down” valuation and are buying GoPro’s stock for this reason. FBR’s Daniel Ives recently added fuel to the fire by saying that an acquisition is likely. Ives said:

“We believe an acquisition of GoPro would make sense for Apple; action cameras are uniquely positioned at the intersection of Apple’s smartphone, wearables and multimedia offerings. Additionally, GoPro’s new product cycles could open the door to areas where Apple’s competitors are investing heavily (e.g., drones, VR), and Cupertino has been playing catchup. We also see strategic value in GoPro being integrated with Apple’s strong multimedia ecosystem (e.g., iTunes, Apple TV, etc.).”

However, investors should continue avoiding GoPro as it has more downside potential. Moreover, an acquisition is not in the cards for GoPro and the stock will fall to under $ 15 in the coming months, making it a sell at present prices.

Acquisition is a pipe dream

Investors who have lost a great amount of money on buying GoPro’s stock are hoping that the likes of Apple and Google will acquire the stock for a hefty premium. However, betting on a stock on the hopes of a turnaround is not only a bad investing strategy, in GoPro’s case, the chances of acquisition are next to zero.

GoPro’s business model is built on a one-hit wonder product. Although the company sells great cameras, its business model isn’t diversified. In addition, GoPro doesn’t have attractive IP or patents that would make it a worthy investment for other companies.

The company’s business model is moat-less and although it produces great cameras, the company’s prospects are very limited. In addition, as evident by the latest quarterly report, GoPro’s sales are also slowing down at a rapid pace. Despite all the negative factors, the company commands a market cap of nearly $ 2.5 billion. Thus, I am ruling out an acquisition as I don’t see Apple or any other company spending around $ 3.5 billion to acquire GoPro.

Conclusion

Buying a stock on the hopes of an acquisition is a very bad investment strategy. It is almost impossible to correctly predict an acquisition, which is why I think investors should stay away from GoPro. The company’s slowing growth and moatless business would not appeal to any buyers, and the chances of it getting acquired are next to zero. Thus, investors are urged to stay away from the stock as it is likely to fall 10% to 15% from present levels.

Live Index

Live Index

Discussion

Rules of Discussion on Live Index

1. This forum is for discussion of financial markets. Please respect others view even if they are contrary to you.
2. Member's comments should lead to value addition in forum discussion.
3. If anyone is found making repetitive Explicit/Abusive/Racial comments, his account shall be banned and old posts will be deleted.