Big Printin’ – $GPRO: Heroic Price Action

by Dan December 10, 2015 3:37 pm • Education

Shares of GoPro (GPRO) are up 13% on a day with seemingly NO news aside from the fact that an analysts at FBR capital Dan Ives suggested in a note to clients that Apple (AAPL) should consider buying the company because “Action cameras are uniquely positioned at the intersection of Apple’s smartphone, wearables, and multimedia offerings.”

Back in late October in my Q3 earnings preview of the company (when the stock was much higher in the high $20s) I reiterated my bearish view, but identified the potential for a takeout (despite my view that its is very unlikely):

During the entire way up after the IPO, and the entire way down since the highs, it has been my view that this company would be the poster-child for overvalued /overhyped piece of crap stock for this leg of the bull market. I apparently have had good company in this view as short interest has been steadfast for months at 40%+.

Just this morning I saw this story about a tiny clip on camera from EE (here) that can live stream HD video to a smartphone. Apple will get around to this market, and that likely means the end of GPRO, unless of course Apple was interested in doing a sort of Acqui-hire for Nick Woodman, his products and brand, as they did with Beats last year. A 50% premium on GPRO’s current $4 billion market cap would make the value about 3x sales, not dissimilar to the valuation AAPL paid for Beats (a little more than 3x 2014 sales). This is pie in the sky sort of stuff, but I suspect Woodman and the vibe he has built around his products could be an interesting complement to AAPL’s brand and mesh well with some of their aspirations in wearable devices.

Again, this is highly unlikely in my opinion, but the stock’s strength today, coming off of new all time lows yesterday suggests that near term sentiment was getting a tad too pessimistic, especially when you consider that prior to today the stock was nearly 75% on the year and there is 40% short interest.

The problem with GPRO here is that growth has come and gone, once priced for it when it was going up post IPO, and now priced for existing consensus calling for only 8% eps growth in 2016 on only 14% sales growth.  The stock trades only 14x expected earnings and 1.4x expected sales.

Back to today’s short squeeze, Options volume has exploded in the stock today with nearly 130,000 contracts trading, or about 3x average daily volume.  Shortly after the open when the stock was $17.50, a trader rolled a near term bullish view, buying to cover 10,000 Jan 15 puts for 62 cents, and selling to open 10,000 of the April 11 puts at 58 cents.  If the stock is above 11 on April expiration than the trader would receive the $580,000 premium for the option sale. But I suspect on any continued strength, matched with some decay early in the new year, the trader would look to take profits or roll the position as they did today. This could be an  outright bullish bet, or possibly a yield enhancement strategy for an existing long holder.