In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these stocks may need to see a break past key support or resistance:
BG, ZMH, HUM, SWKS, AMP, NXPI
NEW DIRECTIONAL CALL PLAYS
GoPro, Inc. - GPRO - close: 84.10 change: +2.60
Stop Loss: 79.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 8.6 million
Entry on November -- at $---.--
Listed on November 18, 2014
Time Frame: We may want to exit prior to Dec. 23rd
New Positions: Yes, see below
Why We Like It:
GPRO is in the consumer goods sector. The company held its IPO in June this year. They came to market with 17.8 million shares and priced at $24.00, which was at the high-end of its $21-24 range. Their opening trade on June 26th was $28.65. Four days later GPRO was at $48.80. Three months later shares of GPRO were trading above $96.00. Today there are 125.7 million shares outstanding.
Who is GoPro? According to a company press release, "GoPro's versatile cameras and accessories enable people to self-capture immersive and engaging footage of themselves enjoying their favorite activities. From extreme to mainstream, GoPro's HERO line of wearable and gear-mountable capture devices are transforming the way consumers, professional athletes, and video production professionals capture, manage and share meaningful photo and video content. Based in San Mateo, California, GoPro's products are sold in more than 25,000 stores in over 100 countries worldwide and direct via GoPro.com. GoPro-branded content is shared and enjoyed by millions of people on popular media channels such YouTube, Facebook, Vimeo and Instagram."
There has been a tiny bit of confusion about what kind of business GPRO really is. They keep alluding to becoming a media company. They do have a significant social media presence. Currently their YouTube channel has 2.4 million subscribers and over 620 million views. Their views were up +99% year over year last quarter. Yet until they start monetizing their "media" we should consider them a consumer electronics business.
They have a pretty good consumer electronics business. In 2011 their revenues were $234.2 million. In 2012 that was up to $526 million. In 2013 their annual revenues were over $985 million. As the hot new growth company GPRO has definitely captured Wall Street's attention.
GPRO's first quarterly earnings announcement as a public company was July 31st. Analysts were expecting a profit of $0.07 on revenues of $237.9 million. GPRO beat estimates with a profit of $0.08 as revenues surged +38% to $244.6 million. Q2 gross margins were 42.2%, up from 32.3% a year ago. Management guided higher for Q3 above Wall Street's estimates (at the time).
They followed up their Q2 performance with another winner. Their Q3 earnings results came out on October 30th. Estimates had risen to $0.08 per share on revenues of $265.7 million. GPRO crushed these numbers with a profit of $0.12 a share as revenues surged +45.8% to $280 million. Gross margins inched higher to 44.5% versus 33.5% a year ago.
GPRO guided higher for the fourth quarter and expects a profit in the $0.65-0.69 zone versus estimates of only $0.54. They also raised their Q4 revenue guidance into the $550-580 million range compared to Wall Street's estimate of $506 million.
Now we are approaching the all important holiday shopping season. GPRO expects it to be a big one. Management said previous holidays they were understaffed.
There are always risks, especially with a volatile stock like GPRO. The stock experienced a -32% correction from its closing highs around $93.80 down to its October lows near $64.75. Technically the stock has recovered and appears to have built a bullish inverse head-and-shoulders pattern over the last few weeks. A rally past the $85.50 area could be the neckline and resistance for the inverse H&S pattern.
I do want to reiterate that this should be considered a higher-risk trade.
Last week the stock was volatile when they announced a secondary offering of $800 million in stock. Last night they amended their S-1 statement to show they were boosting the secondary offering to about $930 million or 11.9 million shares of stock. The headline obviously didn't slow the rally down today.
Bigger picture GPRO faces risks from competition. Right now they are "the" brand to buy for high-definition cameras to capture your activities. They will see competition heat up. In their "risks" section of their SEC filings, competition is at the top of the list. This may not be a factor until next year.
On a more immediate note GPRO does have a lock up expiration on December 23rd. We might want to exit positions prior to that lock up date.
Technically shares are poised to breakout past resistance and the point & figure chart is bullish and forecasting a long-term $106 target.
Tonight I am suggesting small bullish positions with an entry trigger at $86.00.
Trigger @ $86.00 *small positions to limit risk*
- Suggested Positions -
Buy the 2015 Jan $90 call (GPRO150117c90) current ask $5.30
Option Format: symbol-year-month-day-call-strike