Buy GoPro Calls, Ignore Citi Analysts

GoPro Inc. (NASDAQ:GPRO) is hot in the news after analysts at Citi Research Group provided a pessimistic outlook on the company in a research note that was released yesterday. GoPro with its market capitalization of $7.70B produces mountable and wearable cameras and accessories for action sport enthusiasts.

What is Citi Saying?

Analysts Jeremy David and Ehud Gelblum yesterday pointed that the appeal of GoPro’s wearable camera might not transcend the demographics of hardcore action sport enthusiasts. According to them, people find the content produced by GoPro’s camera appealing but fewer people are considering strapping on the Hero+ to take a jump from the top of the Eiffel Tower.

According to the submissions from a survey that the analysts commissioned through Survey Monkey:

while the US consumers surveyed were not the same ones we surveyed a year ago, the two samples are similarly representative of the US population. Our main take-away is that only 5% of U.S. consumers plan on purchasing an action camera in the next 12 months, down from 7% a year ago.”

In addition, the analysts also noted that drones might be garnering the attention away from wearable cameras. The fact that cameras can even be mounted on drones suggests that GoPro might soon be hitting troubled waters if it doesn’t roll out an army of its own drones.

Following this submission, the analysts have slashed their 2015 estimates for GoPro on revenue and earnings. The analysts now expect GoPro to release EPS of $1.55 per share below the previous estimates of $1.86 per share. Revenue is expected to come in at $1.85 billion below the previous estimate of $2.19 billion.

Previous GPRO Coverage

I wrote about trading GPRO options last month in a post titled, “Unlimited Possibilities in May with GPRO Calls”. In that piece, I discussed GoPro’s impressive financial performance as it reported its third consecutive quarterly outperformance on earnings and revenue estimates. I talked about the upside potential ahead of the stock and I recommended the GPRO Oct 2015 60.000 call (GPRO151016C00060000) at an asking price of $3.00.

As at 9:47AM EDT today, the shares of GoPro were trading at $56.88 to mark a 13.57% gain from the trading price of $50.08 when I last wrote about the stock in May. The options contract that I recommended at an asking price of $3.00 now commands an asking price of $4.90 to mark a 63.3% gain in 5 weeks.

How to Trade GPRO Options

From the foregoing, it would appear that holding GPRO call options might not be a smart move. However, I don’t think that a single analyst downgrade is enough reason to be afraid because it is just the words of two men against the fundamentals of GoPro business. The best part is that an analyst at Piper Jaffray has defended GoPro with a reaffirmation of its “Overweight” rating and $68 price target on the stock.

I recommend moving the stop loss on the GPRO Oct 2015 60.000 call (GPRO151016C00060000)$4.50 in order to lock in your profits. You can still buy the said contract if you are new to the GoPro party.

— Daily Option Alerts

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