It’s long been an open secret in the tech world that software builds empires, whereas hardware loses traction over time. Software generates huge profit margins, and tends to garner recurring revenue for many years to come. On the other hand, hardware companies routinely fail due to production and manufacturing challenges, high burn rates, and unsustainable profit margins. We saw this play out yet again in GoPro’s (GPRO) latest quarter. Despite the launch of the HERO7 camera, which performed well enough and led to a revenue beat, the company got hammered on margins.
However, Oppenheimer analyst Andrew Uerkwitz continues to believe GoPro is under appreciated by investors and, as such, reiterates an Outperform rating on the stock with a $9 price target, which implies a potential upside of 84% from where the stock is currently trading. (To watch Uerkwitz track record, click here)
Uerkwitz stated, “We make a simple argument. GoPro doesn’t need to win over the world to win investors’ favor. There is consistent demand for high quality capture devices. With GoPro’s brand, unique features, and market position, GoPro can keep leading the market and stay profitable. Moreover, with a cheap valuation and structural growth in 2019,”
“We believe 2019 is the best opportunity for GoPro to dispel these misplaced fears. In fact, we upgraded on the observation that much of improving management execution has gone unnoticed. We believe a clean 4Q18 and 1Q19 guidance will go a long way in swaying negative sentiment. The biggest clue for this to happen, we didn’t see any Hero 7 Black discounting…we believe a first in several years,” the analyst added.
However, TipRanks indicates a largely doubtful analyst consensus not ready to take the gamble on this action camera maker story. Out of eight analysts polled in the last 12 months, one is bullish on GPRO stock, five remain sidelined, and two are bearish on the stock. With a return potential of 31%, the stock’s consensus target price stands at $6.44. (See GPRO’s price targets and analyst ratings on TipRanks)