The Case For Taking a Shot On GoPro Stock

Let there be no confusion — buying a stock because you think the company is an acquisition target isn’t investing. It’s certainly not in line with our Foolish philosophy, which (among other things) suggests holding proven, quality brands for the long haul. All-or-nothing bets just aren’t our thing.

Every once in a blue Moon, however, a potential buyout candidate just so happens to be one because the market appears to be undervaluing that company’s brand, operation, and future prospects.

That’s arguably where GoPro (GPRO 1.28%) is right now. The stock’s miserable performance over the past decade may have wrung out the majority of its possible downside, and then some. The market may even be underestimating where the company could be within just a few years.

That still doesn’t make it a great fit for every investor’s portfolio. Indeed, it’s probably not a name that makes sense for lots of investors. But if you’re sensing a potential high-risk/high-reward opportunity in beleaguered shares of GoPro stock though, you’re not crazy.

More hype than was ever merited

To say GoPro failed to live up to its 2014 initial public offering‘s hype is quite an understatement. Shares traded near $28 at their debut, and then quickly soared to almost $100 as investors clamored for a piece of the young action camera company. Now the stock is testing record lows just above $2. That’s a 98% pullback from its peak.

What went wrong? It’s not too tough to figure out — the world just didn’t need anywhere near the number of action cameras GoPro suggested would be needed. This year’s expected revenue of $1 billion is well below 2015’s annualized high of $1.8 billion.

Analysts aren’t calling for any sales growth next year either. The consensus among the few analysts still keeping tabs on this stock suggests that a swing back to a slight profit is in the cards for 2025, but even then it’s just not enough to matter — at least, not yet.

There’s still a bullish case to be made here, however, even if it is a tad unusual. That’s GoPro’s value to a prospective buyer versus its low cost. The entire company could be bought right now for little more than a song. Even if a prospective suitor doesn’t see this, there’s a chance the market as a whole might.

It’s certainly affordable enough

As of the most recent look, GoPro’s market capitalization is right at $330 million. That’s far less than the average acquisition within the technology arena, including Microsoft‘s $1 billion acquisition of digital ad platform Xandr in 2021 and Alphabet‘s 2022 purchase of augmented reality name Raxium for a cool $1 billion. Deals of this size just don’t turn heads anymore. The acquirer can often just write a check to make it happen.

That’s not to suggest GoPro could simply be bought in its entirety for a little more than $300 million. There’s also its debt and other liabilities to cover. The company’s got roughly $280 million in near-term bills to pay, plus another $133 million in long-term liabilities. On the flipside, GoPro’s also sitting on nearly $1 billion worth of real assets like inventory, accounts receivable, property, and some $200,000 worth of cash.

While assets never quite seem to be worth as much as hoped in the event of a sale (and liabilities have a funny way of being greater than first figured), the plausible net difference between GoPro’s assets and liabilities is still greater than the company’s current market capitalization.

The brand and underlying tech are the prize

The real prize here, however, isn’t the company’s assets and existing operation. It’s the brand name itself, along with its underlying technology. In the right hands, GoPro’s action camera brand could be so much more than it currently is. What that might look like still isn’t entirely clear, admittedly.

We do know that the company’s tech is top-of-the-line; its cameras are consistently rated as the best within the action camera category. What’s missing, however, is a big enough digital ecosystem to give GoPro camera owners good reason to not only use their devices, but also a reason and ways to share their videos with others. In this vein, GoPro’s subscription-based video sharing and viewing platform’s user base and annual revenue is stagnating at only 2.5 million and $100 million, respectively.

Perhaps something more along the lines of Alphabet’s YouTube would prove a more potent (revenue-bearing) platform. We’ve certainly seen Alphabet do something like this before. It acquired then-struggling fitness tracker company Fitbit in 2021 under very similar circumstances. And it’s continued to promote the brand’s fitness devices, steering its users toward Google’s broader online ecosystem.

Apple has also been suggested as a potential GoPro suitor although that pairing’s potential synergies aren’t quite as clear. And yet, it doesn’t even have to be another organization that unlocks the action camera company’s potential. GoPro could also do the same for itself even if it might take a bit more work, some fresh capital, and a little more outside-the-box thinking.

It’s already doing such work, in fact. Some of its newer initiatives include lower-priced, entry level cameras. It’s also developing new sponsorships and partnerships, any of which could be the one that sparks an explosion of interest in its tech. For instance, in January it acquired motorcycle helmet maker Forcite, entering a $6 billion market supported by consumers that love to film their rides.

The bigger point is, there’s still something can be done with the brand and its tech. Whether it’s the company itself or a suitor that makes it happen, GoPro shares are pretty darn cheap given the strides it’s made in the past decade. The fact that GoPro is already operating near breakeven only bolsters the bullish argument.

Just keep in mind that this isn’t the right stock for everyone as it brings above-average risk along with above-average volatility. Anyone who can stomach the risk will still want to keep a position relatively small.