While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of GoPro (NASDAQ:GPRO) fell 5% on Thursday after Vertical Group initiated coverage on the high-definition personal camera technologist with a sell rating.
So what: Along with the bearish call, analyst Robert Lopez planted a price target of $28.50 on the stock, representing about 34% worth of downside to yesterday's close. So while momentum traders might be attracted to GoPro's post-IPO price strength, Lopez's call could reflect a sense on Wall Street that the risks surrounding the company's growth trajectory are being largely overlooked.
Now what: According to Vertical Group, GoPro's risk/reward trade-off is rather unattractive at this point. "GoPro's shares have appreciated nearly 80% following the recent IPO, and present valuation, in our view, credits GoPro handsomely for a Content Monetization initiative we deem fraught with risks, while concurrently ignoring both decelerating Revenue Growth and a range of competitive threats we deem salient," said Lopez. "Our Fair Value assumes GoPro's shares trade for 25x our CY '15 NG EPS estimate, yielding our initial Fair Value of $28.50." When you couple GoPro's still-questionable competitive moat with its red-hot stock price, it's tough to disagree with Vertical's cautious stance.
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Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.