It’s Time to Go Long GoPro Inc (GPRO) Stock
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GoPro Inc (NASDAQ:GPRO) stock hasn’t been on many “buy” lists for some time. The stock is down roughly 74% since its IPO, and the company has bungled more than one product launch in the past year. However, GoPro proved earlier this month with its second-quarter earnings report that it still has quite a bit of moxie left … and it has put GPRO stock bears on notice.
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In a quite recap of the numbers, GoPro reported a 34% spike in revenue and a narrower-than-expected loss of just 9 cents per share. Wall Street had targeted a 25 cent per share loss.
What’s even more impressive is that not only did GoPro cut operating costs by more than 36%, it also slashed its inventory by 39% — both key figures when you’re trying to stay lean amid increased market competition.
As a result, GPRO soared briefly into double-digit territory in early August. But a foothold above $10 was not yet in the cards. GPRO stock was overbought, and the shares retreated amid considerable volatility as bargain hunters battled profit taking.
GoPro may have finally hit a point of equilibrium, however, as the shares have pulled back to support in the $9.25 region — an area that has acted as strong resistance in the past. Furthermore, GPRO’s 20-day and 200-day moving averages have just completed a bullish cross — a technical formation that may bring more bargain hunters to the table.
On the sentiment side, there is plenty of bearish sentiment to unwind and drive GPRO stock even higher once price action settles down. According to data from Zacks, GoPro stock has attracted only one buy rating, compared to 10 hold or worse ratings.
Furthermore, the 12-month price target of $9.15 represents a discount to GPRO stock’s close yesterday. As analysts further digest GoPro’s earnings, we could see upgrades or price target increases emerge from the woodwork.
Elsewhere, short sellers are beginning to get a bit nervous in the wake of GPRO’s new-found price action. During the most recent reporting period, the number of GPRO shares sold short dropped by 5% to 27.3 million. That said, some 26% of GoPro’s float remains sold short, providing ample fuel for a potential short-squeeze situation if the shares can establish a firm foothold above $10.
On the options front, we may be seeing signs of nervous short sellers. Over the past several weeks, the September put/call open interest ratio for GPRO has fallen to a near-term low of 0.51, with calls nearly doubling puts among soon-to-be front-month options. Short sellers buy out-of-the-money or at-the-money calls when they expect their holding to rise as a means of hedging their bets, and this recent rise in GPRO call OI may be a direct result of such hedging activity — a bullish sign for GPRO.
Overall, September implieds are currently pricing in a potential move of about 5.7% for GPRO stock ahead of expiration. This places the upper bound at $10.04, while the lower bound lies at $8.96. A solid breakout above $10 could be a major move for GPRO stock, one that implieds are not quite pricing in given the current level of short interest.
2 Trades for GPRO Stock
Call Spread: Those options traders looking to bet on a resumption of GPRO’s post-earnings rally might want to consider a Sep $10/$11 bull call spread. At last check, this spread was offered at 14 cents, or $14 per pair of contracts. Breakeven lies at $10.14, while a maximum profit of 86 cents, or $86 per pair of contracts, is possible if GPRO closes at or above $11 when September options expire.
Put Sell: Alternately, for those not looking for an outright bullish play, a GPRO September $8 put sell has a high probability of finishing out of the money. At last check, this put was bid at 12 cents, or $12 per contract.
As usual with a put sell, you keep the premium as long as GPRO stock closes above $8 when September options expire. On the downside, if GPRO trades below $8 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $8 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
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