When a stock loses more than 90% of its value, it's a clear indication that the market is concerned about structural problems with the underlying business. That has certainly been the case for GoPro (GPRO -1.64%), whose stock reached an all-time high of $93.85 in 2014 before steadily declining by 96% to just $3.18 a share today.

GoPro makes industry-leading action cameras, but they are a niche product and the company has struggled to maintain consistent sales growth. Unfortunately, the company has long been a one-trick pony. But that is quickly changing.

While most investors look at GoPro stock as a wasted investment, I'm going to make the case for buying it based on two things:

  1. The introduction of subscription-based revenue streams targeted at driving profitable growth.
  2. The company's rock-bottom valuation.

I won't suggest GoPro stock will recover all of its lost ground to make new record highs, but it doesn't have to in order to deliver investors a market-beating return for new investors. With that in mind, let's dive into the details.

GoPro is rapidly increasing its footprint in physical retail stores

Like most consumer products companies, GoPro has always sold its action cameras through large retailers. Considering its new HERO12 Black starts at $399, it's important to have a presence in physical stores where consumers can touch and feel the product before committing.

But when retail foot traffic crashed and many shopping venues went into lockdown during the pandemic, the company leaned into its website, GoPro.com, to sell directly to consumers. By the first quarter of 2021, online sales accounted for more than 40% of GoPro's total revenue. In the first quarter of 2023, that number exceeded 54%. More sales through its website ended up being a net positive because the company pocketed all of the proceeds from each sale rather than splitting some of the profit with a retailer.

As pandemic pressures eased and consumers returned to their pre-pandemic shopping habits, GoPro again focused on getting its products into more physical stores. The company planned to enter 2,000 new stores in 2023, but by the third quarter (ended Sept. 30) it had already entered 2,500. It wants to add 3,000 more this year, which will bring its total to 25,000 worldwide -- a 30% increase from when it decided to make this strategy shift in May 2023.

GoPro hopes this will help boost its revenue growth. The company generated $1.19 billion in revenue in 2019, and when its official 2023 results are reported in February, it expects to report $1.09 billion in revenue for last year. That means over four years, GoPro's annual revenue actually shrank. It's a big reason its stock remains under pressure.

A low angle view of a person snowboarding mid air.

Image source: Getty Images.

Subscriptions will be a critical part of GoPro's future

As I mentioned at the top, being a one-dimensional company hasn't cut it with investors. GoPro has worked hard to diversify, with two subscription-based revenue streams and another in the pipeline.

First GoPro launched a mobile application called Quik, which is designed as an alternative to native smartphone camera software. For $9.99 per year, it offers users a comprehensive set of photo and video editing tools with which to create unique content, in addition to unlimited cloud storage.

GoPro doesn't always report Quik's subscriber numbers, but as of the last update in mid-2023, it had 294,000 paying users. Simple math suggests that translates to nearly $3 million in annual recurring revenue, which is a drop in the bucket. However, Quik expands GoPro's addressable market to every smartphone user in the world, because a GoPro camera isn't required to access it.

The company also offers a subscription to its website, GoPro.com. It's priced at $49.99 per year, and it's targeted specifically to GoPro camera users. It gives them exclusive product discounts, live streaming capabilities, damaged camera replacement, and unlimited cloud storage for videos.

Pending its official results, GoPro expects to have ended 2023 with up to 2.6 million paying subscribers, an increase of 15% from 2022. That could translate to over $100 million in annual recurring revenue from 2024, with a high gross margin of up to 80%, which means a significant portion will flow to the bottom line as profit.

But it gets better. GoPro is launching a version of Quik for desktop computers, which will be sold in a new Premium+ subscription priced at $99.99 per year. It will also include all of the entitlements that come with the GoPro.com subscription.

GoPro trades at a rock-bottom valuation

GoPro has a valuation of $488 million as of this writing. Considering its 2023 revenue is expected to come in at $1.09 billion, its stock trades at a price to sales (P/S) ratio of just 0.4. In other words, investors think GoPro is worth less than six months of revenue -- it truly is trading at a rock-bottom valuation right now.

In fact, it's near the cheapest P/S ratio in GoPro's history as a publicly traded company, and it's about 45% below its five-year average of 0.9.

GPRO PS Ratio Chart

GPRO PS Ratio data by YCharts

GoPro is also in a sound financial position. Its 2023 results are expected to show it has $300 million in cash on hand, and the company is carrying around $141 million in long-term debt. GoPro spent $40 million on stock buybacks last year, which puts some money back into shareholders' pockets.

Plus, early Wall Street estimates point to a profitable year for GoPro in 2024, which should further strengthen its financial position.

Nothing is ever certain when it comes to investing, but it's hard to imagine GoPro stock trading at an even cheaper level than it does today. Given that it would have to almost double just to trade in line with its five-year average P/S ratio, combined with its growing (and profit-contributing) subscription revenue streams, the risk-reward proposition here is extremely attractive.