Investors dream about finding the next Nvidia. After all, over the past 10 years, the chipmaker's shares gained 30,370% versus 244% for the S&P 500 index. Certainly, it's rare to find a company that can produce that kind of return over a long period. And while no one has a functional crystal ball, examining companies' fundamentals will give you a leg up in finding potential outperformers.
Consider GoPro (GPRO 0.68%) -- a consumer products company with a name familiar to many. It has attracted a lot of investor attention this year, and its stock price has doubled. Could the shares continue this run over the long term?
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Can the business turn around?
GoPro makes durable cameras that take high-quality photos and videos under "action" conditions, along with accessories such as drones. People can mount the cameras on helmets, drones, or other vehicles, and often use them to capture sports or other action footage from a first-person perspective.
While its products in early years had a "cool" factor, as well as functionality that sports enthusiasts find attractive (e.g., they are waterproof and sturdy), the company has struggled to grow revenue. Among the factors hurting GoPro's top line are increasing competition: Rival camera makers now offer similar features, and smartphone cameras have become more advanced over time.
As a result, GoPro's revenue has dropped from $1.1 billion in 2022 to $801.5 million in 2024 -- and that slide doesn't appear on track to end in 2025. GoPro reported second-quarter revenue of $152.6 million, down 18% year over year. The company shipped 408,000 camera units, a 29% drop.
It did narrow its bottom-line loss by cutting expenses, but that's hardly a reason to celebrate. GoPro still reported a quarterly net loss under generally accepted accounting principles (GAAP) of $16.4 million compared to a loss of $47.8 million a year ago.
A reason for hope
On the plus side, GoPro did receive a higher average selling price for its products. That, combined with its cost cutting, boosted its gross margin by 5.3 percentage points to 35.8%. Still, GoPro will need to find a way to attract new customers and produce higher revenue and sustained profitability. After all, a business can't keep cutting costs in perpetuity.
Management believes it has found a way to enhance its business prospects. GoPro generated 27% of its second-quarter revenue from subscriptions and services. It hopes to increase its subscription sales through an artificial intelligence (AI) initiative that it announced a few months ago. Under the program, U.S. subscribers can choose to earn money by making their content available to train AI models. News of this option generated buzz among users, and investors got excited about the stock.
Will shareholders reap rewards?
Could this prove to be a durable and sustainable competitive advantage for GoPro? I have my doubts. It seems rivals like Garmin and Sony can make similar offers. Hence, while GoPro might get a short-term revenue boost, it doesn't seem likely to last.
GoPro's product offerings don't appear to be capable of driving enough demand to justify the stock producing Nvidia-like returns. Investors should note that the company conducted its 2014 initial public offering (IPO) at $24 per share, and its stock has been well under that price for some time, reflecting the company's long-term fundamental issues.
I don't expect GoPro's problems to disappear just because it came up with one idea that seems to have resonated with users. That's why I don't expect the stock's returns from here to approach Nvidia's. Investors looking for big returns should look elsewhere.
