In late 2015, GoPro (NASDAQ:GPRO) approved a $300 million buyback plan that lasted for 12 months. However, the action camera maker only spent $35.6 million on buybacks before the plan expired last September.

Those purchases were poorly timed, since GoPro bought back about 1.5 million shares at an average price of $23.05 per share -- roughly 140% higher than its price today. GoPro made all those purchases during the fourth quarter of 2015, and didn't buy back any more stock until the plan expired.

A man using a GoPro camera to record himself skiing.

Image source: GoPro.

By doing so, GoPro has seemingly acknowledged that initiating a buyback plan was a really bad move, and the company doesn't seem interested in buying back any more stock for the foreseeable future. Should investors be happy or upset about this strategic shift?

Why investors should be happy

GoPro's prior buyback plan burned cash that should have been applied to R&D or acquisitions of smaller companies, since the company is gradually falling behind the tech curve.

The Hero 5 isn't much more powerful than the Hero 4, the Karma drone's recall practically handed the market to DJI, and GoPro still hasn't launched a stand-alone 360-degree camera to counter Samsung's (NASDAQOTH:SSNLF) Gear 360, Ricoh's Theta, and other similar cameras. GoPro's software ecosystem also remains small, despite the introduction of new editing apps and a cloud backup service. Investing heavily in those areas would make more sense than buying back stock.

Samsung's Gear 360 camera, which captures 360-degree photos and videos.

Samsung's Gear 360. Image source: Samsung.

Even if GoPro wanted to repurchase stock, it can no longer do so from its free cash flow. The company generated a negative free cash flow of $151 million over the past 12 months, due to four straight quarters of losses that only recently ended with a return to profitability last quarter.

The lack of a new buyback plan also indicates that CFO Brian McGee, who replaced Jack Lazar last March, doesn't plan to follow in his predecessor's footsteps. When Lazar unveiled the previous buyback in 2015, some analysts saw the plan as a thinly veiled attempt to offset GoPro's liberal use of stock-based compensation -- which inflated its share count and diluted existing shares. That move arguably benefited insiders much more than investors.

Why investors should be upset

However, launching a new buyback plan this year would give investors a sign that the stock's downside potential is limited. GoPro stock also isn't expensive, with an EV/Sales ratio of 0.96 and a 5-year PEG ratio of 0.7. Since a PEG ratio under 1 is considered cheap, GoPro is undervalued relative to its earnings growth potential -- if it can match analysts' long-term expectations.

Many of GoPro's investors would likely welcome a buyback, since the stock's only near-term catalyst is the relaunch of the Karma, which could struggle to reach customers after missing the crucial holiday season.

A big buyback could also flush out short sellers -- who were shorting 33% of the company's outstanding shares as of Feb. 9 -- and spark a short squeeze. That rally could inspire GoPro's insiders, who sold more shares than they bought over the past 12 months, to finally buy more shares. That, in turn, could inspire institutional investors, who only hold about 38% of GoPro shares, to finally come back.

Forget about buybacks... for now

GoPro's abandonment of buybacks can be considered positive or negative, but I believe that the company should focus more on improving its core technologies.

The company has repeatedly claimed that it has a bright future in virtual reality, but its multi-camera Omni and Odyssey rigs were too bulky and pricey compared to cheaper action-camera sized solutions like the Gear 360. GoPro secured an early 360-degree video partnership with Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) YouTube, but YouTube subsequently opened up that platform to a wide range of other cheaper cameras.

GoPro's cloud backup platform also doesn't make sense, since it charges a $5 monthly fee for a service which Google Photos provides for free on smartphones. Moreover, the platform doesn't backup videos in 4K quality -- which likely disappoints hardcore GoPro users. Lastly, GoPro must execute a smart marketing blitz to get the Karma back on track, especially after DJI's Mavic Pro delivered many similar features in a superior package last year.

The key takeaway

Buybacks are often considered a strategy that mature companies use after they run out of ways to significantly improve their core businesses. GoPro is in a slump, but it hasn't reached maturity yet since it still has plenty of ways to improve its camera, drone, and software businesses. Therefore, I believe that investors should be happy that GoPro didn't initiate a new buyback plan this year.