GPRO ($74.63): On Its Way Lower to $45.83

GoPro is up 211% from its IPO. Those that were ballsy enough to get into the name as it continued to climb were rewarded for doing so. However, all money has been made to the upside. Its now time to make it on the way down.

GoPro’s valuation is ludicrous, which is likely a function of the small amount of shares on float. Traders have been able to bid up the name, causing shorts to cover, in turn providing additional upward momentum. I recently wrote an article for Seeking Alpha (PDF Found Here) outlining GPRO’s current valuation. At the time of the article, the company closed trading at $90.94, supporting a $13.5B market cap. Since then, it has fallen ~18%, which in my mind is just the beginning. Below I have provided my valuation of what GoPro’s hardware business is worth.

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The market currently believes the media element of the business is worth $5.13B. As you can see below, this is roughly 40% the size of Youtube. This valuation is tough to justify in my mind given the low barriers to entry.

youtube

Something as interesting, if not more, is how the stock has traded relative to other high flying IPOs. Below is a chart showing four of them and their returns from three months pre lock-up to 9/24. As you can see, all stocks are currently trading significantly lower as locked up shares become available to the market. Right now we are two months from the lock-up expiration and I think shares are on the verge of getting smacked like a pinata. prelockup

The key security to pay attention to here is FEYE. Last night, I was doing some charting and compared GoPro to FireEye. What I found was highly intriguing and in my mind a great indication of what we are likely going to see in GPRO. See below:

Gpro.feye

The charts are almost identical, except for the larger decline in FEYE from the horizontal green arrow. I did some calculations on the date 2.25 months (FEYE high prior to lock-up) before the lock up expiration in GoPro. Turns out it was October 7th, or the top for GoPro, shown in the blue square box above. These names are almost too similar.

The top 8 out of 10 IPOs from 2013 cracked 2-3 months prior to the lock up expiration and I think that is what we are seeing in GPRO. Here is a list of other companies that I did not include in the graph above:

DATA: lock up ex. on 11/13/13, cracked 3 months prior, rallied back, then trended downward 2 months out.

NDLS: ex. 12/25/13, performed almost identically to DATA.

SFM: ex. 1/28/14, cracked a week or so shy of three months and fell hard.

MKTO: ex. 11/13/13, cracked exactly three months before, rallied back with about a month left, and then dropped pretty hard.

I think the combination of valuation and the significant similarities to FEYE and 2013’s high flyers push GoPro down to $45.83. GET SHORT.