This Former One Trick Pony is Now a Rising Star

In our recent Spill newsletter, we looked at Apple’s (AAPL) recent earnings.

While doing so, we came across a company that we thought had been left for dead – GoPro (GPRO).

It never ranks exceptionally high in total searches or in the consumer electronics category, whether amongst financial pros or retail. Yet, it always shows up on the list, no small feet for a sub $10 stock.

For the longest time, GoPro (GPRO) was considered a one-trick pony. Heck, they IPOed as the company known for putting a camera on a stick. 

However, fast-forward to the present, and the company is completely different. And no longer a laughing stock on Wall Street. 

Being a one-trick pony worked for Netflix (NFLX).

The problem is, if you have a good enough business, competition will eventually come in and take market share. 

After years of dominance, the streaming giant faces significant pressure from the likes of Disney (DIS), Apple (AAPL), and Amazon (AMZN) who have budding streaming services.  

GoPro remodeled itself into a more imaginative company, one that many of us probably don’t even know about.

And we think it could be time for another look.

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Go Pro (GPRO) Business 

GPRO develops and sells cameras, drones, and wearable accessories globally. 

In 2019 the company only made money from the sales of its hardware. However, GPRO now has hardware, subscription services, and app monetization as streams of revenue. 

Back then, the majority of GPRO sales were made in retail stores, about 90%. 

Today, about 66% of sales are from retail outlets and the remainder is direct to consumers.  A strategic move that has helped GPROs gross margin go from 34% in 2019 to 41% in 2021. 

When it comes to the product, very few are better in the niche. The Hero10 Black is the best-selling camera in the U.S. camcorder market. 

Furthermore, GPRO has established itself as a powerhouse brand over the years. Its YouTube channel has more than 3.6 billion views. And GPRO has over 46 million followers across its social media accounts. 

During the first quarter of 2022, GPRO announced its subscription business was up 85% YoY to 1.74 million subscribers. 

The company also announced it did $217 million in revenue for the quarter—which included subscription revenue at $89 million or 41%. 

Financials

After a tough 2020, GPRO bounced back in 2021, as revenues rose from $892 million to $1.16 billion. 

And its operating income went positive for the first time in five years. In 2020 it was negative $31 million, and in 2021 it shot up to $113 million. 

Cash and investments increased by 52% YoY to $450 million, as reported in the firm’s Q1 2022 results. 

In 2021 the firm had a positive free cash flow of $224 million. 

GPRO has a current ratio of 1.86x. Its highly liquid assets are 1.86x greater than its short-term liabilities. It has a quick ratio of 1.45x, which means its highly liquid assets are 1.45X greater than its short-term liabilities. 

The company has a debt-to-equity ratio of 0.30x, which is significantly less than 2020’s 1.25x and capital structure as follows: total debt of $315 million and cash upwards of $449.9 MILLION And a market cap of approximately $1.12B.

Valuation

GPRO has a price-to-sales ratio of 095X, which is right in line with the sector median. 

The firm’s Non-GAAP P/E of 7.45x handily beats the sector median of 11.27x. 

Plus, GPRO has $181.2 million in cash from operations (TTM), which is better than the sector median of $158.3 million, as well as a price-to-cash-flow ratio of 6.2x.

Our Opinion – 8/10

Believe it or not, GPRO runs a very solid business. And now that its added subscriptions to its revenue streams, and more direct-to-consumer sales, we believe the company has a bright future. 

Shares recently dropped about 20% following its Q1 2022 report, after the company guided lower. 

But if you believe in the company, we think it’s created a buying opportunity. 

Furthermore, given how large the brand is, we think it also makes for a good buyout candidate in the future.

We like this stock for the next 12-24 months.