GoPro Stock Has a Lot to Prove on Thursday

By Rick Munarriz Markets Fool.com

Image source: GoPro.

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Shares ofGoPro(NASDAQ: GPRO)were among last year's biggest losers, plunging 52% as sharp sales declines and a botched drone rollout weighed on the former market darling. This follows an even more brutal 72% drop in 2015, as the stock worked off the exuberance following its red-hot 2014 IPO. Investors took a beating in 2015 and 2016, but they've been singing a different tune in 2017. The stock is trading 16% higher this month, setting the stage for a make-or-break quarterly report on Thursday.

Wall Street's holding out for a big bump in sales following the release late last year of the Hero5 wearable camera. Analysts see GoPro clocking in with sales of $577 million, 32% ahead of the prior year's holiday quarter.The news should be even better on the bottom line. Analysts are holding out for a profit of $0.23 a share, reversing a year-ago loss. GoPro has posted four consecutive quarterly deficits, and now it's on the right track to turn that trend around.

Healthy top-line growth and a return to profitability are great to see, but it's also important to remember that GoPro's Hero4 came out in 2014. GoPro had what can best be described as a gap year between generations, and the smaller Hero4 Session model that it introduced during the summer of 2015 was a flop until a margin-deflating price cut.

If we compare GoPro's upcoming report with its results during the holiday quarter of 2014 -- a better comparison between Hero4 and Hero5 models -- the two-year comparison falls woefully short. GoPro generated a profit of $0.74 a share on $633.9 million when its financial performance peaked in the fourth quarter of 2014.

Total recall

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Investors have been skittish when it comes to GoPro, fearing that wearable cameras will fade in popularity as smartphones become more durable and outfitted with upgraded video-shooting functionality. Bulls were initially excited about GoPro's promised entry into the consumer drone market, but those efforts failed to take off in more ways than one.

GoPro had to delay the release of its Karma drone, and when it finally did hit the market late last year it had to recall all of the 2,500 units in the wild after some of them lost power mid-flight. GoPro is eyeing a relaunch later this year, but can the brand survive the original recall for the high-priced Karma?

GoPro's quarterly results and its guidance will go a long way toward dictating if this year's initial gains hold up. Any color that GoPro can offer on Thursday on retail trends and drone news should also move the stock. The painful streak of four consecutive quarters of year-over-year declines of at least 30% will come to a merciful end on Thursday, but the real test is only beginning.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of and recommends GoPro. The Motley Fool has the following options: short January 2019 $12 calls on GoPro and long January 2019 $12 puts on GoPro. The Motley Fool has a disclosure policy.