The shares of action camera manufacturer Gopro Inc (NASDAQ: GPRO) plunged to a low of $11.82 last week, following the report of fiscal 2016 third-quarter results that were far below the analysts’ estimates. On September 27, we had suggested investing in a put option with a strike price of about $15. The recommendation was given when the stock was trading at about $18. Considering the poor third-quarter results the market has an extremely bearish view of the stock. However, we believe that there is a high probability of a bounce back in the share price due to the launch of next-generation cameras such as HERO4 and HERO5, and the highly optimistic fourth-quarter guidance issued by the company. The stock of GoPro closed Monday’s trading session at $10.64.
The San Mateo, California-based manufacturer of video editing software and related mobile apps reported a 39.9% decline in the third-quarter 2016 revenue to $240.57 million, from $400.34 million in the similar period last year.
For the period ended September 2016, the manufacturer of the KARMA drone recorded a GAAP net loss of $104.07 million, or $0.74 per share. In the similar period of 2015, the company reported a GAAP profit of $18.80 million, or $0.13 per share.
Excluding charges, GoPro recorded a third-quarter non-GAAP net loss of $84.28 million, or $0.60 per share, against a non-GAAP net profit of $36.63 million, or $0.25 per share, last year’s similar quarter. The Thomson Reuters estimate was a loss of $0.34 per share on revenues of $312.7 million.
During the quarter, the company introduced the first noteworthy update to its popular brand of cameras in two years. GoPro launched the Hero 5 Black and the smaller, cube-shaped variant Hero 5 Session with several salient features. Additionally, the Quik app, which can automatically download the content from a GoPro camera to a computer desktop, was also introduced. Furthermore, the company launched Karma, the first consumer-level Hollywood-caliber aerial, handheld, mountable drone.
The company shipped 1.02 million units in the third quarter. It was lower than the analysts’ shipment estimate of 1.11 million units, but 34% higher than the 759,000 units shipped in the second quarter.
Considering the rising sales and the approaching holiday season, the company issued an optimistic fourth-quarter revenue and earnings estimate. GoPro expects GAAP earnings of $0.15 per share (+/- $0.05) on revenues of $625 million (+/- $25 million) in Q4 2016. The non-GAAP earnings are expected to be $0.30 per share (+/- $0.05). It can be noted that the company reported a GAAP net loss of $0.26 per share on revenue of $437 million in Q4 2015.
For the full-year 2016, the company anticipates revenue of between $1.25 billion and $1.30 billion. In fiscal 2017, GoPro is expecting double-digit y-o-y revenue growth and non-GAAP profit.
Based on the above details, we believe that the share price would start rising soon.
The historic price chart reveals that the stock has bounced off the major technical support at 10.50. The stochastic oscillator is in the extremely oversold region and is showing signs of reversal. Thus, an increase in the share price is expected.
So, a one-touch call option can be bought with the objective of making a profit from the predicted uptrend in the stock. The binary trader can choose a call option target of $12 or lower and an expiry date falling between the 5th and 10th of December.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
