Wall Street routinely falls in love with certain stocks, and unbounded optimism pushes prices up to new heights. But the reverse sometimes happens as well, with extreme pessimism, warranted or not, kicking a stock while it's down. GoPro (NASDAQ:GPRO), General Motors (NYSE:GM), and Plug Power (NASDAQ:PLUG) are hated by Wall Street. Should you follow suit?
An action camera train wreck
Tim Green (GoPro): Action camera leader GoPro was once a Wall Street darling, valued at more than $10 billion soon after its initial public offering in 2014. The stock has now tumbled roughly 90% from that peak, beaten down as GoPro's growth steak abruptly ended. Revenue fell 26.8% in 2016 to $1.19 billion, and the company posted a staggering net loss of $419 million.
GoPro, which is now in recovery mode, expects to grow revenue in the first quarter of 2017. The company aims to slash costs and eventually return to profitability, announcing major layoffs late last year as part of that effort. Given its terrible performance in 2016 and the botched launch of the company's much-hyped Karma drone, investors should hesitate to put much faith in a turnaround.
Analysts certainly don't have much faith in GoPro, predicting non-GAAP losses both this year and next. The numbers will look even worse on a GAAP basis, so GoPro investors may be waiting quite a long time for a return to profitability. A long string of analyst downgrades over the past few months has knocked down the average analyst price target below the current stock price.
GoPro certainly has a lot of work to do. The company will need to find a way to grow its core business while slashing costs, producing meaningful bottom-line improvements to show that its turnaround is making progress. The Karma drone will be relaunched later this year, but it's difficult to imagine significant demand following the recall last year. Much of the hate hurled at GoPro has been deserved by its awful performance, and it will no doubt take a herculean effort to revive its fortunes.
The automaker Wall Street loves to hate
Daniel Miller (General Motors): One stock Wall Street loves to hate is General Motors. It's tough to blame Wall Street after years of mismanagement and poor-quality vehicles that landed two of Detroit's three automakers in bankruptcy during the past recession. How quickly things can change, though, and GM is now hardly the automaker Wall Street has grown to hate.
General Motors is showing investors that, unlike with past management, it will make tough decisions when necessary to exit unprofitable markets and focus on more lucrative business strategies, whether that's a different market, autonomous vehicles, or smart mobility projects like Maven. That was never clearer than when GM stunned investors and announced it was exploring options to sell its European operations.
Beyond major decisions such as potentially exiting Europe, a slew of smaller and better business decisions have helped drive GM's return on invested capital-adjusted to 28.9% during 2016, a 170-basis-point improvement. It's also evident that GM is improving its operations as it estimates the company can break even if the U.S. seasonally adjusted annual rate of vehicles remains between 10 million and 11 million units, a level barely tested during the depths of the recent recession.
GM's even surprising itself with how much fat it's been able to cut from operations. It originally had a four-year plan to drive $5.5 billion in cost efficiencies by the end of 2018. It's already exceeded its guidance to the point where it now expects to raise its full four-year target of cost efficiencies by $1 billion.
With sales currently peaking in the U.S. market, GM has another chance to prove that, unlike its previous iterations, it can thrive in a more challenging market -- and perhaps then it would be difficult for Wall Street to keep hating it.
Wall Street's hydrogen love story gone wrong
Travis Hoium (Plug Power): What Wall Street giveth, Wall Street can taketh away. So the story goes for Plug Power, the supplier of hydrogen fuel cells to forklift operators around the country. The chart below shows the stock's amazing run in late 2013 and early 2014 and how absolutely hated the stock is today.
Nearly 20% of its shares are sold short, which means there are investors betting millions that it will get worse from here. In other words, Wall Street thinks Plug Power is going bankrupt.
The problem over the past five years is that Plug Power hasn't been able to turn growth in the fuel cell sector and contracts from big customers like Wal-Mart into profits. It's been pouring money into sales and new product development and infrastructure, but can't get enough back to make those investments worthwhile. Some observers might point to the future of hydrogen in transportation or some energy backup situations, but there are much bigger energy companies vying for those markets.
Plug Power was once a love story on Wall Street, but lately the tides have turned. This is a stock Wall Street has no interest in and you probably shouldn't, either.