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GoPro Inc. (Nasdaq: GPRO) continues to defy the odds thanks to a litany of headlines and experts who just "know" the stock is going to rebound.
…Pac Crest says buy the stock despite "session" disappointment – Barrons
…GoPro bounces back on coverage initiation – TheStreet
…GoPro market unlikely to be cannibalized by smartphones – Investor's Business Daily
And my personal favorite…
…GoPro can recover in 2016 – Sterne Agee
Call me crazy, but that's about as possible as FedEx painting its truck fleet brown.
I think GoPro stock is worth $15 a share… at best.
Here's what you need to know to line up 50% gains or more.
Wall Street Darlings Are a Funny Breed
Driven by hype and very clever investment banking, stocks that are breathlessly celebrated by Wall Street often have terrible fundamentals and little or no promise of ever enriching anybody except their founders and early VC investors. Yet they rise like a rocket after their initial public offering, luring millions of investors to their financial demise.
Then, when reality becomes apparent, they come crashing down to more realistic valuations, crushing anybody left holding the bag.
That's the part that interests me most, for the simple reason that shorting stocks can be phenomenally profitable if you know what to look for and when to make your move. Plus, doing so provides another source of diversification by technique that's every bit as important as diversification by large cap, small cap, bonds, etc.
George Soros, for example, banked a billion dollars breaking the Bank of England in 1992. Then he made another billion betting against the Japanese yen – a trade, incidentally, that I beat him to and helped Money Morning readers capture profits of more than 100%.
Jim Chanos, who heads Kynikos Associates, has made millions by calling out companies ready for a tumble. He was first in the water with Enron, for example, calling it a "disguised hedge fund unworthy of the valuation" it held. Tyco and Worldcom were other notable Chanos calls.
We've talked about the importance of shorting stocks a lot this year with choices like Shake Shack Inc. (NYSE: SHAK), Zoe's Kitchen Inc. (NYSE: ZOES), and Twitter Inc. (NYSE: TWTR). Subscribers who have followed along as directed have bagged profits of at least 48.74%, 10.98%, and 33.92% as those companies have fallen from grace.
In each case, we took our cue from a common set of factors:
- Extremely high valuations that don't match market fundamentals
- A litany of articles, recommendations, and commentary extoling investors to ignore poor performance and buy anyway
- High company-specific risk
GoPro hits on all three.
The company peaked at $98.47 a share in October, which reflected a PE ratio of 1,230 times earnings, give or take. Since then, it's dropped by more than 60% to where it closed Tuesday.
The chart is particularly ugly.
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.