Some Confidence Is Lacking In GoPro, Inc. (NASDAQ:GPRO) As Shares Slide 27%

Unfortunately for some shareholders, the GoPro, Inc. (NASDAQ:GPRO) share price has dived 27% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 62% share price decline.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about GoPro's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Consumer Durables industry in the United States is also close to 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for GoPro

How GoPro Has Been Performing

GoPro could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on GoPro will help you uncover what's on the horizon.

How Is GoPro's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like GoPro's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 8.1% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 13% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 0.3% per annum during the coming three years according to the three analysts following the company. That's not great when the rest of the industry is expected to grow by 5.3% per year.

With this in consideration, we think it doesn't make sense that GoPro's P/S is closely matching its industry peers. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

What We Can Learn From GoPro's P/S?

With its share price dropping off a cliff, the P/S for GoPro looks to be in line with the rest of the Consumer Durables industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our check of GoPro's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for GoPro that you should be aware of.

If you're unsure about the strength of GoPro's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.