Market Is 'Giving Too Much Credit' To GoPro, Morgan Stanley Downgrades Stock

GoPro Inc GPRO deserves some credit for returning to profitability in late 2017, but perhaps investors are giving the company "too much credit," according to Wall Street's newest bear analyst.

The Analyst

Morgan Stanley's Yuuji Anderson downgraded GoPro's stock from Equal-weight to Underweight with a price target slashed from $9.50 to $5.

The Thesis

Heading into the holiday 2017 period, Anderson's channel checks painted a "poor" picture for the action camera maker but this was balanced with the fact that the company returned to profitability. Now that the holiday season has passed, the analyst says his prior assessment "proved too generous," especially after the company resorted to cutting the price of the latest HERO6 camera.

GoPro's stock found some support amid reports the company is looking to sell itself, Anderson said in the note. But the market is giving the company "too much credit" for any potential strategic value it can offer to any acquiring company. Specifically, GoPro's value is "tied to its usability" and its earnings power is still at risk.

GoPro may have a problem with its core product, the analyst said. In order to boost demand for action cameras, GoPro needs to "meaningfully" improve the underlying software. Without any drastic improvement, the negative trends seen in 2017 will likely continue throughout 2018 and into 2019 while simultaneously weighing in on its earnings power and any strategic value to a potential acquirer.

Price Action

Shares of GoPro were trading lower by more than 6 percent at $5.90 early Tuesday morning.

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