By Vikas Shukla
In October 2014, GoPro Inc (NASDAQ:GPRO) stock rallied to $98.47, but it has declined about 50% from its all-time high. Though the action camera maker benefited from the strong holiday quarter demand, investors were concerned about its sky-high valuation. Investors grew even more skeptical last week when Apple was granted a patent for a GoPro-like wearable action camera.
GoPro heading in the right direction
However, the San Mateo-based company seems to be heading in the right direction. On January 15, the company signed a deal with Vislink to make a wireless streaming transmitter that will make it easier to broadcast live HD footage. If successful, it will open the whole new market of wearable broadcasting devices. The company has already been working to create a sustainable media business. Now it has also started making inroads into the hunting and shooting sports market.
However, L&F Capital Management says that the fair value of GoPro stock is $44. The investment firm derived the figure using a two stage Free Cash Flow to Equity (FCFE) model. The two stages are high-growth stage and stable growth stage. L&F Capital said it used a weighted average analysis to achieve a fair present value of GoPro stock.
L&F Capital puts GoPro’s fair value at $44
The investment firm chose 35% upper limit for high-growth scenario over the next five years, which is slightly higher than the average analyst projections of 33.28% annual growth. The floor high-growth rate is 5%. The action camera market is expected to saturate in the next 3-5 years, but GoPro’s Hero products will maintain their premium status in years to come, despite rising competition. They chose 6% stable growth rate because a company can’t grow at more than 6% long-term into infinity.
L&F Capital then created 35 different scenarios in their FCFE model by combining high-growth rate in 5% intervals with different stable growth rates from 6% to 2%. Thus, the weighted average analysis gives 35 different price targets. The double-weighted price target yields weighted average of $44.39. But due to uncertainty around the action camera market, the investment firm attributes 15% uncertainty to the valuation. That means the stock’s present value could be 15% higher or lower than the weighted average present value of $44.