MoneyMorning.com Report - I raised more than a few eyebrows back in August 2014 when I told you that I wouldn't touch GoPro Inc. (Nasdaq: GPRO)'s IPO with a 10-foot selfie stick. And I lit up the techno-cognoscenti when I noted that the stock would ultimately fall so low as to be valuable only as a takeover target because GoPro stock couldn't stand on its own merits.
Last Thursday, the stock jumped 11.49% in a single session on rumors that Apple Inc. (Nasdaq: AAPL) may buy the beleaguered tech darling, leading millions of investors to wonder if they should jump on the bandwagon, too.
In a word - nope.
Today we're going to talk about why GoPro stock remains a risk you don't want or, more specifically, need in your portfolio ahead of a rate hike.
And I'll tell you what you want to buy instead.
When to Pass Up a 79.48% Discount
I've been negative on GoPro from the very beginning and I remain so today.
The initial rise following the company's IPO was nothing more than traders making hay on the back of assumptions that ranged from the overly optimistic to the downright ludicrous.
The company's stock has fallen 79.48% since September 2014, and the "big move" that got everybody so excited last week isn't worth the risk. Not for individual investors, anyway.
The company still has big problems, just like every camera company ahead of it, which means the company isn't worth what most investors think.
There's no compelling evidence, for example, that GoPro can provide anything other than a temporary alternative to other wearable tech with a better form factor. Examples include cameras from iON and JVC and sport technology like the Recon Jet.
That was the revolutionary video camera system that Cisco Systems Inc. (Nasdaq: CSCO) purchased in 2009 for a jaw-dropping $590 million at the time. Like GoPro, many believed it represented the future and was therefore worth gobs of cash.
Less than two years later, Cisco killed it.
I'm not saying Apple would kill GoPro, but the parallels are hard to ignore. The Flip was just as innovative then as GoPro is today. Not many people remember this, but Flip sales were actually pretty darn respectable when Cisco surprised everybody.
Here's the Bottom Line
GoPro makes some really cool products and they've got a rabid fan base of people who film themselves and others doing some truly outrageous things. But that doesn't mean they've got sustained profit potential.
The company has engaged in deep, deep discounting this holiday season, and that's going to eat into margins. The HERO4 Session camera, for example, just dropped from $199 to $100 a unit. That puts it on par with the HERO+, supposedly an entry-level camera.
It also suggests that the company hasn't got a firm grasp on its product line. Effectively, GoPro is letting what is supposed to be a top-of-the-line new product cannibalize sales. It doesn't help that GoPro cameras reportedly began showing up on discount sites like Groupon Inc. (Nasdaq: GRPN), Zulily Inc. (Nasdaq: ZU), and RueLaLa a few months ago.
None of that's great for margins, and it's even worse for earnings.
The real drag, though, comes back to something you hear about all the time when it comes to the latest whiz-bang tech offering - monetizing users.
That's a tech expression meaning that a company is not just going to sell you a product and send you packing. They're going to figure out a way to make money off you and your content. There are a few ways companies like GoPro can do this. Some of the most common include pay-per-click advertising, cost-per-impression advertising, affiliate marketing, paid memberships and, of course, selling your data to others.
And if they can't get users to pony up?
The lights will go out faster than when an ersatz, wannabe director yells cut. Either that or blatant copycat films, licensing challenges, and boring video will kill it just like a lack of monetization has laid waste to Twitter Inc. (NYSE: TWTR ).
Fortunately, that's not a vulnerability facing Apple.
I've made no bones about the Cupertino giant's shift under CEO Tim Cook away from the device-driven model built by Jobs to an ecosphere model driven by access.
GoPro is a logical acquisition because it fits with Apple's current product line-up and its ecosphere. So, for that matter, are Tesla Motors Inc. (Nasdaq: TSLA), Adobe Systems Inc. (Nasdaq: ADBE), and perhaps even FedEx Corp. ( FDX ) or Target Corp. ( TGT ). And with $200 billion in the bank figuratively speaking, Apple can pretty much buy anything it wants yet still have change left over.
Does that mean GoPro's good for you - as an individual investor ?
I'm always willing to pay up for a company that's "best in class" or that has a defensible technology. GoPro has neither.
I won't hesitate to line up for a stock that's got control over its margins and, by implication, the pricing power to go with it. GoPro doesn't.
I love picking up shares in an opportunity others don't yet see let alone recognize when I can make the case there's deep value available. I can't in this instance.
But you never want to buy a stock when there's froth. What you do want to do is buy when people say they absolutely can't stand the pain.
So if you're tempted to wade into GoPro, buy Apple Inc. (Nasdaq: AAPL) instead.
That's the stock nobody can stand to see go lower.
And, by implication, the one with actual upside.
Editor's Note:Keith has said in media appearances that he expects Apple to be a $200 stock by early 2017 - but he's got his eye on a small-cap company that could post gains more than 10 times that as it harnesses one of the "Unstoppable Trends" in markets he's discovered. In fact, the company doubled within six weeks of Keith recommending it to Total Wealth readers, and he foresees several more chances for this little robotics company to double within the next few years. For a full and free report, including ticker symbol, clickhereto sign up for Total Wealth - it's free!
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