GoPro Inc (NASDAQ:GPRO), a USD$1.38B small-cap, is a consumer discretionary company operating in an industry, whose sales are driven primarily by consumer sentiment, which is closely linked to employment and wages. Access to capital is also important, so interest rates and lending standards influence the rate at which consumers purchase big-ticket durable items. The sector is also undergoing significant structural shifts resulting from changes in consumer preference, as well as the continued rise in online competition. Consumer discretionary analysts are forecasting for the entire industry, a strong double-digit growth of 18.14% in the upcoming year, and an enormous growth of 33.96% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the household durables sector right now. Below, I will examine the sector growth prospects, and also determine whether GPRO is a laggard or leader relative to its consumer discretionary sector peers. See our latest analysis for GPRO
What’s the catalyst for GPRO’s sector growth?
E-commerce continues to be the fastest growing sales platform for consumer discretionary goods, changing the landscape for retailers. A large number of store closures and bankruptcies illustrates the shift in consumer preferences and increasing online competition. In the previous year, the industry saw growth in the teens, beating the US market growth of 4.49%. GPRO lags the pack with its negative growth rate of -64.94% over the past year, which indicates the company will be growing at a slower pace than its household durables peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 83.13% in the upcoming year. This future growth may make GPRO a more expensive stock relative to its peers.
Is GPRO and the sector relatively cheap?
Household durables companies are typically trading at a PE of 17x, lower than the rest of the US stock market PE of 22x. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry returned a similar 10.80% on equities compared to the market’s 9.99%. Since GPRO’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge GPRO’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? GPRO’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto GPRO as part of your portfolio. However, if you’re relatively concentrated in household durables, you may want to value GPRO based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If GPRO has been on your watchlist for a while, now may be the time to enter into the stock, if you like its growth prospects and are not highly concentrated in the household durables industry. However, before you make a decision on the stock, I suggest you look at GPRO’s future cash flows in order to assess whether the stock is trading at a reasonable price, as well as other important fundamentals such as the company’s financial health in order to build a holistic investment thesis.
For a deeper dive into GoPro’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other consumer discretionary stocks instead? Use our free playform to see my list of over 100 other consumer discretionary companies trading on the market.