Mountable camera maker GoPro has enjoyed a nice run since going public less than a year ago. With shares now trading around $43 apiece, the stock is up more than 79% from its initial public offering price of $24.
However, GoPro isn't without its critics. As much as 33% of the company's outstanding shares are currently sold short, which means a lot of investors are actually betting against the stock. For those of you who are still on the fence about GoPro, I outline below the bull and bear cases for the stock and explain why I'm long.
Taken with a GoPro camera. Source: GoPro.
The bear caseValuation is one of the biggest arguments against GoPro today, despite a recent pullback in the stock. GoPro's shares have fallen about 33% so far this year, and are now trading toward the low end of the stock's 52-week range. Yet that hasn't stopped the bears from continuing to believe the stock is overvalued. They're not entirely wrong, either. Shares of GoPro have a price-to-earnings growth rate of 2.17, which is markedly above the industry average PEG of 1.63. Throw in the fact that the stock currently trades at more than 45 times earnings and GoPro indeed looks pricey at current levels.
Ultimately, the bears see GoPro as an overpriced purveyor of trendy camera gear. Of course, this isn't the critics' only problem with the company. Increased competition is another concern the bears have about GoPro. Chinese camera maker Xiaomi recently rolled out an action camera similar to GoPro's Hero product -- only Xiaomi's version costs half as much as GoPro's cheapest cameras while still retaining similar functionality.
The reality is there are companies with far deeper pockets, such as Sony and Apple , that are already well positioned to grab a piece of the action-camera market. Apple, for example, was recently awarded a patent for a mountable video camera that could potentially rival GoPro's lineup of cameras. GoPro is currently the market leader with an estimated 42% share of the market, according to research from IDC. However, the low barriers to entry in this market could leave GoPro out in the cold down the road.
The bull case On the other side of the debate we have the GoPro bulls, investors who are optimistic about the company's future. One of the linchpins of their argument is the potential for GoPro to monetize the consumer-generated content on its growing GoPro Network. The camera maker is now morphing into a media and entertainment company. During the fiscal 2014 fourth-quarter, more than 3.9 years worth of content was uploaded to YouTube with GoPro specifically mentioned in the title.
GoPro is also getting love on other platforms, including Microsoft's Xbox devices. In fact, the GoPro Channel app for Xbox has now been downloaded more than one million times, with users watching an average of 25 minutes of GoPro content per viewing session, according to the company. This is important, because it could lay the groundwork for GoPro to monetize this media by licensing the content or selling ad space down the road.
GoPro's foray into professional sports is another potential catalyst for the stock. The camera maker teamed up with the NHL earlier this year in a deal that equips players with GoPro cameras to capture the action both in games and during practice sessions. In addition to setting the stage for similar deals with other pro sports teams, the partnership also plays into the company's ambitious content plans since GoPro gets the rights to the footage.
Should investors be pro GoPro?While the bear case is certainly justified, I believe the potential opportunities for GoPro stock outweigh the risks. It's true that shares of GoPro look pricey even with the stock currently trading near the low end of its 52-week range. However, long-term investors are paying up now for what could be a winning growth stock in the years ahead. From exclusive content channels to strategic partnerships, GoPro is much more than merely a hardware company today.
Competition is a risk in the near-term, though GoPro's impressive brand strength should help safeguard it against new entrants in the space. Moreover, it isn't just about GoPro's ability to sell cameras anymore, thanks to the company's growing ecosystem of vertically integrated hardware and editing software. For these reasons, I'm bullish about GoPro and think the stock should climb higher in the quarters to come.
The article Bull vs. Bear: GoPro Stock originally appeared on Fool.com.
Tamara Rutter owns shares of Apple. The Motley Fool recommends Apple and GoPro. The Motley Fool owns shares of Apple. 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.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.