GoPro shares were down more than 6% in early trade on Wednesday after analysts at both Barclays and Piper Jaffray published cautious comments on the stock.
Joseph Wolf at Barclays, who maintained an Equal Weight rating on the stock, wrote, “We have been struggling with GPRO’s valuation since early September.”
Wolf adds that using the full diluted 150 million shares of GoPro, the stock is trading at about 8 times its 2015 revenues, and says that its not uncommon for growth stocks like GoPro to trade at 10-20 times revenues.
But there are some other dynamics that are currently impacting GoPro’s stock price.
Wolf wrote that, “We are fairly certain that a large percentage of the limited 20 million share free float is now owned by retail investors, not institutions.”
Wolf added: “We do not expect any short-term fundamental misses and think expectations are reasonable. However, we believe the end of the IPO lock-up period for the stock on Dec 22 will dramatically increase the supply of stock and could place pressure on the share price.”
So, two things to note here.
One, if a large number of GoPro shares are being held by retail investors, it likely indicates that the stock is being actively traded and flipped, and the stock price right now is unlikely to reflect measured expectations of the company’s future earnings.
Second, news last week that GoPro’s founder and CEO Nick Woodman would gift 5.8 million shares to a charitable trust, and that as part of this JPMorgan would release the trust from the lock-up restriction, sent shares of GoPro lower.
But the actual end of the lock-up restriction is still a few months away, and Wolf notes that this ought to already be considered by investors. Typically, when more shares of a company come into the public market, the price of the stock falls as supply exceeds demand, and given that GoPro’s listed shares have risen so sharply, current GoPro investors should be ready for this event.
All of this, however, is on the background of Wolf still seeing the company’s fundamentals as being in great shape. “We do not expect an execution miss-step to drive a valuation correction,” Wolf wrote.
Also on Tuesday, Sean Naughton at Piper Jaffray downgraded GoPro, to Neutral from Overweight, writing that, “the current valuation leaves little room for additional upside.”
“We remain bullish on GoPro’s growth opportunity, both in the near-term and longer-term,” Naughton said, “but would wait for a more attractive entry point.”
On Tuesday Piper Jaffray also released its latest Taking Stock With Teens survey, which showed that 17.2% of respondents said their family owned a GoPro, up from 12.6% in Spring 2014 and up from 9.3% in Fall 2013.