Source: GoPro S1.
GoPro (GPRO -1.68%) tends to be a battlefield stock, and for good reason. After its amazing IPO, the stock has been on an adrenaline-fueled ride reminiscent of one of its user's videos. For perspective, the greater S&P 500 increased 5.2% from GoPro's IPO day to the end of 2014; GoPro had daily movements greater than 5.2% (both up and down) an astonishing 41 times during that period.
Just to clarify, in one out of every three days, GoPro had movements in excess of the S&P's entire gain during that entire period. And while we at The Motley Fool are fundamental, long-term investors in the vein of Warren Buffett and Ben Graham, scalpers, day traders, and swing traders see that large movements have the potential for large gains.
More recently, GoPro has seen increasing bearish sentiment coinciding with a market-cap drop from more than $11 billion to its recent $8 billion valuation. Even now, GoPro is among the most-shorted stocks on the Nasdaq, with short interest approaching 60%. For long-term investors, it's always prudent to ask if the crowd is on to something. Simply put... why does Wall Street -- and the shorts -- hate GoPro?
A mispriced stock?
For many on Wall Street, a decision by GoPro to play up its social media ambitions may be one of the reasons for its high short interest. By most valuation metrics, social-media companies like Facebook and Twitter (TWTR) command higher values (and multiples) than device makers like Apple and Canon. While GoPro has a path to monetize its popular videos, it derives no significant revenue from social media at the moment. So you can understand why short-term traders think the company may be mispriced.
Furthermore, an interesting corollary is that, for many short-term price traders, Go-Pro's stock performance is starting to look like Twitter's. As a result of a tremendous IPO and subsequent euphoria that has since faded, Twitter's management now finds itself battling major shareholders more concerned with the falling stock price rather than the underlying fundamental performance.
For perspective, Twitter increased its third-quarter revenue an outstanding 114% year over year, and still sold off due to monthly active user growth concerns. For many former high-flying companies, even excellent financial performance will not placate the appetites of short-term investors.
Cult of personality
Short-sellers are a special breed of trader. In addition to valuation and sales concerns, many short-sellers look at things like mismatched perceptions. Michael Lewis' book, The Big Short, outlines Dr. Michael Burry and his go-against-the-grain nature, and is the best example of this contrarianism.
When it comes to GoPro CEO Nick Woodman, many in the media appear to focus on qualities like personality, passion, and youth more than they do in other CEOs. Those things are important; but in many cases, these are mere pleasantries extended by the media in return for access.
As an example, JMP Securities analyst Alex Gauna compared GoPro's recent execution to Apple's during Steve Jobs' tenure because the company had its camera line ready for the holiday season -- something that any prudent consumer electronics company would do in the run-up to its most important season.
During the Bloomberg interview, the company was compared to The Walt Disney Company, Apple, and Nike in terms of being visionary. And while I've personally had differences with Mr. Gauna's analysis before, this bullishness appears typical of media reports on the company.
This is no disrespect to Mr. Woodman, but let's remember that Steve Jobs led three wildly successful ventures: Apple, Pixar, and NeXT. By returning to Apple and leading the company back to the top, Mr. Jobs earned the designation as the Michael Jordan of CEOs. Mr. Woodman's first venture, FunBug, is now defunct. In the end, I think it's unfair to Woodman to heap such praise upon him this early in his CEO career.
When traders hear comparisons to Steve Jobs, Walt Disney, or any visionary leader, it puts a big target on GoPro's back for short-sellers looking to monetize what they feel is excessive bullishness.
What should we make of this?
While a great deal of this article was written to address short-term movements with the company, we at The Motley Fool don't look at buying stocks in terms of charts or short-term movements. We look at investing as buying long-term ownership in a company. Warren Buffett once famously said, "If you don't feel comfortable owning something for 10 years, then don't own it for 10 minutes."
Understanding the irrationality of the short-term investor helps us in our quest to become better long-term investors. In the long run, the financial performance will matter more than current sentiment or today's short interest.
GoPro is an interesting company because it has a unique value proposition. Will it continue to stave off threats from other action camera competitors? Can the company effectively monetize its user content? Whatever happens, you can bet traders will overreact in the short term.
