Could GoPro Really Fall Almost 50%?

Oppenheimer initiated coverage on GoPro with an Underperform rating and a $45 price target. The Underperform rating was based on a shrinking growth outlook, unrealistic expectations and the valuation.

This is not the first such very cautious and negative stance on GoPro. J.P. Morgan downgraded GoPro to Neutral from Overweight with a price target of $51 back in early September.

Oppenheimer applauded the rise of GoPro from one man’s workshop to the world’s largest producer of consumer camcorders and even goes as far to say that it should be commended on its product, brand and market that it created. However, the firm says the future for this company may prove to be more challenging.

As the company moves toward a broader market, seemingly it will reach a point where it has to compete with the smartphone, and this could prove difficult. Oppenheimer also expects more competition to enter the capture market, which will result in lower gross margins and missed expectations.

ALSO READ: Analysts Giving Up Hope in Amazon, but Not With Enough Conviction

Oppenheimer forecasts the earnings per share for the coming years against street estimates, using a 35-times multiple for its 2016 estimate to reach its $45 price target:

• 2014: Oppenheimer estimate of $0.80, compared to consensus estimate of $0.82
• 2015: Oppenheimer estimate of $1.02, compared to consensus estimate of $1.05
• 2016: Oppenheimer estimate of $1.28, compared to consensus estimate of $1.34

In the opinion of Oppenheimer, hardware designs have stalled and major camera spec improvement will create only marginal benefit for the users. Also the pond is too small for this niche product, meaning the total addressable market size is limited.

In the market sell-off last week, GoPro dropped roughly 12% to $74.63 from $85.05, the close just before the sell-off.

Shares of GoPro fell roughly 6% to $74.48 in the opening hour of trading Friday. The stock has a consensus analyst price target of $82.88 and a post-IPO trading range of $28.65 to $98.47. The company has a market cap of over $9 billion.

ALSO READ: 3 Stocks to Benefit From Fast Growing Global Solar Power Demand