GoPro Inc Shares Fall Back To Earth: A Technical Look

One of the Street's hottest IPO's of the year is under major selling pressure in Thursday's session. At the time of this writing, GoPro Inc GPRO shares are trading lower by $10.00, or 11 percent, at $81.48.

The issue debuted on June 26 at $28.65 and really never looked back. After an initial rise to $50.00 in four trading sessions, it had a brief pullback under $40.00; this was followed by a month of consolidation and then it was off to the races. GoPro ripped through the $50.00, $60.00, $70.00 and $80.00 handles in September before finally finding sellers as it approached triple digits, eventually peaking at $96.45 on Monday.

Barron's Pans GoPro For Fundamental Reasons

Even negative comments last weekend in Barron's did little to stem the rally. GoPro actually rallied nearly $9.00 on Monday following the release of the negative article.

Related Link: GoPro Inc's Place In The Sports World

Barron's cited increased competition for GoPro products at lower prices as one of the tenets of their thesis. The other tenet, which may resonate more with the fundamental crowd, was the company's rapidly rising costs versus its revenues. Vito Rancelli noted, that operating expenses "jumped 70% in the first half to $199.50 million and were 42% of sales, up from $117.5 million and 36%."

Rancelli also indicated that the company itself expects a slowdown in growth. In its recent IPO filing, Rancelli noted, GoPro said that it "doesn't expect to sustain or increase revenue growth rates." Rising costs with declining growth is recipe for disaster for any growth stock.

For those investors that waited to sell their GoPro stake or buy puts based on negative Barron's ink, noted short seller Citron Research could have led them sitting pretty.

Citron Research on Tuesday tweeted that GoPro was a short. Fading the herd that was upgrading the issue and raising price targets, the firm cited that analysts were raising price targets based on stock movement and not the fundamentals. That sparked a quick $2.00 decline in the issue, but it recovered to close at an all-time closing high at $93.70.

Perfect Storm

After a $2.00 decline on Wednesday, the perfect storm hit the issue Thursday when the company -- in an unprecedented move -- released a special deal to one of its largest shareholders.

GoPro allowed founders Nicholas and Jill Woodman to be released from a lock-up of 5.8 million shares (from a 20 million share stake) in order to sell a portion of the shares gifted to their charitable foundation.

FireEye Inc FEYE had similar move following a secondary offering, when the issue catapulted from $35.00 to nearly $100.00 in seven months. Owners of GoPro may not wait to witness the aftermath. The move by FireEye instigated a sell-off that did not end until the issue bottomed well below its IPO opening price ($40.30) at $27.06.

Looking Forward

It is impossible to predict how low GoPro can go. Short sellers have not been able to feast on the issue, since there are limited amounts of the issue available and those that are come at exorbitant rates. At time of this writing, it had already matched Wednesday's volume, but may not reach its record volume day on Tuesday of 32 million. Interestingly, that is the same day it reached its all-time intraday high and closing price.

One general rule of thumb when following an extended move, similar to the one made by GoPro, is to focus a 50 percent retracement of the entire up move. Based on its rally from $28.65 to $96.46, that level would come in at $62.55.