The GoPro stock price was down as much as 13.8% from yesterday's close this morning (Thursday), after news that the company's founders were granted permission to break the lock-up restriction on their shares.
Following an initial public offering, company insiders are contractually forbidden to sell shares for a certain period of time, known as a "lock-up period." The lock-up usually lasts between 90 and 180 days.
However, GoPro Inc. (Nasdaq: GPRO) founders Nick and Jill Woodman reached an agreement with the IPO's lead underwriter JPMorgan Chase & Co. (NYSE: JPM) on Wednesday allowing them to gift 5.8 million shares of GPRO stock to their charitable foundation, the Nicholas + Jill Woodman Foundation.
GPRO stock began trading on the Nasdaq on June 26 after setting an offer price of $24. In the first four trading sessions, GPRO climbed to a closing price of $48.79 - a gain of 103%. This Tuesday, the stock posted its highest closing price ever at $93.70, a 290% gain from its offer price.
At Wednesday's closing price, the 5.8 million shares the Woodmans gave away were worth approximately $532 million.
The news that the founders of the company were "cashing out" nearly 6 million of their shares sent the stock plummeting. GPRO shares saw increased trading volume on the news and by 2 p.m., roughly 18.3 million shares had exchanged hands. GPRO's average trading volume for a full session is closer to 16 million.
Any further insider selling by the founders following the lock-up period would be a bearish indicator for GPRO stock. When company insiders are high on their own stock's potential, they buy more shares of the holding rather than selling them.
GOPRO-A NASDAQ: GPRO Oct 02 03:40 PM loading chart... Price: 86.31 | Ch: -5.49 (-6.4%)But regardless of insider selling, there are other reasons why the rise of GPRO stock to yesterday's highs may be short lived...
"GoPro's got big problems ahead of it - just like every camera company before it - and that means the company isn't worth what many think it is," Money Morning's Chief Investment Strategist Keith Fitz-Gerald said.
Challenges Facing GPRO StockThere' no denying that GoPro camcorders have the "cool factor" going for them. The firm's devices are frequently strapped to high-profile extreme sports athletes like surfer Kelly Slater and snowboarder Shaun White.
However, its devices are easily replicable.
"The GoPro cognoscenti are screaming that the company's products are the best at capturing people doing all sorts of wacky, wild, daring, and imaginative things," Fitz-Gerald said. "You'll get no disagreement from me. But there is no compelling evidence that GoPro can provide a lasting alternative to the greatest threat to the company's relevance - smartphones. And that's the crux of the issue. The company offers a feature - albeit a really cool one."
And that concern is amplified when looking at the major tech companies in the United States that could chip away at GoPro's market share.
"There's no reason whatsoever to believe that its competitors won't catch up... that Apple and others won't come out with products that match or exceed GoPro's capabilities or be easier to use," Fitz-Gerald continued.
And if that wasn't enough, Fitz-Gerald also isn't sold on the company's financials. GoPro may have impressive revenue growth - nearly 100% from 2012 to 2013 - but a deeper look reveals the true story...
"The company's earnings per share amounted to $0.47 in 2013," Fitz-Gerald said. "That's equivalent to a PE greater than 100. To put that in context, Google Inc.'s (Nasdaq: GOOGL, GOOG) PE was 31.64x its earnings, while Apple Inc.'s (Nasdaq: AAPL) PE exceeded its earnings by a factor of 16."
"This lopsidedness doesn't make sense, especially when you consider the company posted a net profit of just $60 million on more than a $1 billion in sales in 2013. That's a mere 6% profit margin versus Apple's 21.7%."
GoPro is expected to report earnings again on Oct. 30, and that will be a good indicator of whether the company has been providing more than just hype these past three months.
Editor's Note: PIMCO has dominated the headlines this week, and as investors, we can learn a great deal by exploring why Bill Gross took the extraordinary step of leaving the institution with which he is synonymous. Here's what really happened at PIMCO...
Tags: GoPro IPO, GoPro stock, GoPro stock news, GoPro stock price, GoPro stock update, GPRO, GPRO stock, GPRO stock price, Nasdaq: GPROThe post GoPro Stock Price Is Tanking After Founders Find Trading "Loophole" appeared first on Money Morning - Only the News You Can Profit From.
