Where Will GoPro Inc. Stock Be 1 Year From Now?

By Markets Fool.com

GoPro (NASDAQ: GPRO) has been on a rollercoaster ride over the past two years. After soaring from its IPO price of $24 to almost $87 in Oct. 2014, the stock crashed to under $9 earlier this year before rebounding to the mid-teens. That initial optimism was fueled by robust sales of its Hero 4 cameras, while the subsequent pessimism was caused by weaker sales of its mid-range cameras and the failure of the Hero 4 Session last year.

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Image source: GoPro.

Its lack of a major flagship update and an increasingly saturated action camera market during last year's holiday season also resulted in terrible year-over-year comparisons. GoPro's sales rose just 14% last year, compared to its 41% growth in 2014. The stock's recent rebound was fueled by optimism regarding its new Karma drone, Hero 5 cameras, and cloud-based backup platform, but analysts are still expecting its full-year revenue to fall 14% this year.

Looking ahead, GoPro's performance in the coming year will depend on its ability to continue growing in the face of fierce competition in cameras and drone markets. It's impossible to tell exactly how much GoPro will be worth in a year, but we can make educated guesses based on the best and worst case scenarios for the company.

The best case scenario for GoPro

Analysts currently expect GoPro's sales to rise 55% annually to $677.2 million during the fourth quarter, fueled by robust sales of the Hero 5 and Karma. The company expects that figure to boost its bottom line back into the black, and would surpass the $633.9 million in revenues that GoPro generated in the fourth quarter of 2014 with the Hero 4.

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The Karma costs $800 as a stand-alone device, and$1,100 for the bundle which includes the Hero 5 Black, which costs $400 if sold separately. The Karma is also backwards compatible with older GoPro cameras. Wall Street's sales target for the fourth quarter translates to sales of about 850,000 stand-alone Karmas or almost 620,000 Karma/Hero 5 bundles. That's a pretty lofty target, since market leader DJIonly estimated worldwide salesof a million drones for all of 2015.

GoPro's Karma. Image source: GoPro.

But if the Hero 5 and Karma help GoPro beat fourth quarter sales targets and continue rising, GoPro's growth figures will shine next year due to easy year-over-year comparisons. It could follow up that success with the stand-alone 360-degree camera which CEO Nick Woodman announced earlier this year. GoPro Plus' $5 permonth subscription fees could also become a stable source of recurring revenue.

Analysts currently expect GoPro to post a non-GAAP loss of $1.07 this year, compared to a profit of $0.76 last year, but that loss is expected to narrow to $0.25 in 2017. If GoPro's non-GAAP earnings can recover to the $0.76 it reported in 2015 -- and we multiply that figure bythe current industry average P/E of 41.5 for photographic equipment companies -- it's possible that GoPro stock could return to the low $30s.

The worst case scenario for GoPro

However, the holiday quarter will be packed with lots of rival action cameras and drones. Garmin (NASDAQ: GRMN) recently launched a pre-emptive strike against GoPro with the Virb Ultra 30, which adds additional motion tracking sensors for $400. Yi Technology's 4K Action Cam 2 sports the same Ambarella (NASDAQ: AMBA) chipset as the Hero 4 Black, but addsa touch LCD screen, image stabilization, and a bigger battery for just $250.

Image source: GoPro.

In drones, DJI has declared war against GoPro with the DJI Mavic Pro, a foldable drone which is lighter, smaller, and cheaper than theKarma. The Mavic Pro also has a longer battery life, more intelligent flight modes, and better image stabilization than the Karma. Karma could have trouble competing with Mavic Pro.

If that happens, a fourth quarter sales miss would cause the stock to plummet. GoPro would then likely scramble to reduce the Hero 5 and Karma's prices, as it did with the Session, to flush out its inventories. Without enough new cameras in consumers' hands, ecosystem expansion efforts like GoPro Plus, GoPro VR, and its original content plans would wither. Margins would crumble, losses would widen, and GoPro would find it very tough to regain market share in the action camera and drone markets.

But mind the wild cards...

I personally don't have enough faith in the Hero 5 and Karma to invest in GoPro, but I'm also unwilling to bet against such a volatile stock. "Wild card" developments could also catch the bulls and bears off guard -- a major company like Apple or DJI might launch their own action cameras, GoPro might buy another company to diversify, or a bigger player could try to buy GoPro. Therefore, I don't know where GoPro will be in a year -- but its fourth quarter performance will inevitably set the stage for some big gains or steep losses.

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Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Ambarella and GoPro. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.