In June 2022, the benchmark S&P 500 index closed 20% below its all-time high. That officially placed the stock market in bear territory, and the index continued to fall until October.

But the S&P 500 has since climbed by more than 20% from that October low point, which led some Wall Street professionals to declare the beginning of a new bull market. Not all of them agree, though, because some say the index needs to surpass its previous all-time high before the bear is officially banished back into hibernation.

No matter which camp is correct, history shows the benchmark indexes always climb to new highs given enough time. As a result, everyday investors should use this period as an opportunity to buy quality stocks at a discount, no matter the official classification of the market. 

GoPro (GPRO -1.64%) might be a great candidate. Its business faces short-term challenges because it relies on consumer spending, and this period of high inflation and rising interest rates is hurting household budgets. But with its stock down 96% from its all-time high, I'll explain why GoPro stock presents an enticing risk-reward proposition. 

Three smiling people skydiving together.

Image source: Getty Images.

GoPro returns to its pre-pandemic playbook

GoPro makes the world's most popular -- and the most technologically advanced -- action cameras. Prior to the COVID-19 pandemic, GoPro was heavily reliant on large retailers to sell its products, with only a small online presence via its GoPro.com website. But the pandemic triggered a shift in the way consumers shop, with social restrictions and lockdowns driving a surge in online sales. Physical retail stores were simultaneously falling out of favor. 

To ensure success in the new environment, GoPro pulled its products from around 30% of retail stores globally, slashed its marketing spending, and drove traffic to its website to sell cameras direct-to-consumer instead. That resulted in a surging gross profit margin because the company pocketed all of the proceeds from each product sold on its website by cutting out the retailer. But social restrictions are now a thing of the past and consumers are returning to their old habits, so GoPro needs to shift its strategy yet again.

It's returning to its pre-pandemic playbook. It's rebuilding its retail presence, particularly in new regions. It has entered 800 new stores across EMEA (Europe, the Middle East, and Africa) since its strategy shift, and it expects that number to more than double to 2,000 by the end of 2023. GoPro is also slashing prices across the board; they will be more reflective of pre-pandemic levels, before supply chain issues triggered a big rise in costs.

Finally, it's reintroducing entry-level cameras at cheaper price points to increase its total addressable market, and the company also intends to gradually scale its investment in marketing.

These moves are already bearing fruit. In the second quarter of 2023 (ended June 30), the company's revenue came in at $241 million, which was 10% above its forecast. It was still down 4% year over year, but it was up an impressive 38% compared to the first quarter of 2023 just three months prior.

Subscriptions remained a bright spot for GoPro

GoPro always focused on selling cameras and accessories, so its business was very one-dimensional. As a result, the company struggled to generate consistent revenue growth, which is one reason investors have shunned its stock. But a few years ago GoPro set out to diversify its revenue base by introducing subscriptions, which also carry much higher gross profit margins than its hardware products.

Its flagship GoPro.com subscription is priced at $49.99 per year and provides customers with unlimited cloud storage for their videos, the ability to live stream directly from their cameras, and no-questions-asked product replacements in case of damage. Around 40% of customers who purchase a camera either through a retailer or through GoPro.com are opting to subscribe because of the benefits on offer. The company ended Q2 with 2.44 million subscribers, which was an increase of 27% year over year.

Additionally, GoPro has developed a smartphone camera editing app called Quik, designed for non-GoPro camera owners. It's another great way for the company to expand its total addressable market at a cost of just $9.99 per year, and it had 294,000 subscribers at the end of Q2.

Overall, Q2 subscription revenue came in at $23.8 million, which represented 10% of total revenue. Here's the best part: This revenue stream has a gross margin as high as 80%, so much of that revenue flows to GoPro's bottom line as profit. 

Here's why GoPro stock is a buy ahead of the next bull market

GoPro stock reached an all-time high of $93.85 in 2014, and it has since plunged by 96% to $3.75, where it trades today. Lumpy sales growth, an increase in competition, a lack of diversified revenue streams, and a tough economic climate have all played a hand in the decline.

But the company is working on most of those internal problems, and the economy won't be a headwind forever. According to Wall Street's estimates, GoPro's annual revenue will shrink in 2023, and it's expected to lose money on the bottom line. But 2024 estimates suggest both of those things will reverse; a return to growth is in the cards, as is a return to profitability.

Investors currently value GoPro at just $572 million, yet by all accounts, the company will deliver over $1 billion in revenue this year. That places its stock at a price-to-sales ratio of just 0.57, which is near the cheapest valuation in its history as a publicly listed company.

It's understandable that investors don't want to take a chance on GoPro's turnaround in this climate. The benchmark stock market indexes are still below their all-time highs, and there is uncertainty about the future health of the consumer following a series of aggressive interest rate hikes over the last 12 months. 

However, for patient investors with a time horizon of five years or more, I think GoPro stock presents a very attractive risk-reward proposition at its current price. It might earn more appreciation at the official start of the next bull market