GPRO Stock vs. LITE Stock: Headlines vs. Bottom Lines

GoPro (GPRO) is a perfect example of a high-profile IPO: a company whose wearable cameras generated exciting videos that got huge numbers of hits on YouTube, Facebook and other social media. It’s hard to resist a company that gives you the perspective of a sky diver, wingsuit flyer or racing driver. 

GPRO stock came public in late June 2014 at 24 and was off to the races by August, soaring to 98 in October. The stock was covered twice in 2014 by Cabot Top Ten Trader (a seal of approval for any growth stock). And after a correction that pulled the stock to 37 in March 2015, it got moving again, running to 65 in August 2015 (and making two more Top Ten appearances along the way). 

Then the wheels came off. 

GPRO stock started a painful correction after that August peak that drilled it all the way down to 9 in February 2016, and, after a feeble bounce to 14 in April, to 9 again in May. Here’s a weekly chart of the mayhem. 

What happened? Well, some people blamed management for failing to offer new products. After all, once somebody gives you a GoPro camera for Christmas, you need a really compelling reason to buy another one. The company’s three most-recent quarters showed drops in revenue and earnings that were stunning. In Q4 2015, revenues were down 31% and earnings dropped 108%. In Q1 2016, the declines were even worse, a 49% drop in revenue and a 363% dip in earnings. And in the latest quarter, revenue fell 47% and EPS fell 249%. 

So why are people even talking about GoPro? The answer, as with Apple (AAPL), is that GoPro seems like a member of the family. It’s familiar and attractive. And the faint glow of its IPO rally lingers. And with that in mind, some investors can’t help thinking that GPRO stock at 13 (which is where it’s trading now) must be some kind of bargain. 

It’s not. 

Analysts are projecting losses in 2016 and 2017, and the rally that lifted GPRO stock from 9 in May to 16 in August has rolled over again. 

A GoPro camera may still be a great gift for your adventurous son, daughter, niece or nephew, but not for your portfolio. 

If you want to know what a real growth stock looks like, here’s the kind of chart to look for. This is a weekly chart of Lumentum (LITE), a company with a strong position in the fiber-optics industry. 

Lumentum is a global company that makes optical communication and photonic components that are used by major telecom and datacom companies around the world. And in its short life, LITE has been featured in Top Ten three times, once in March and twice in August.

In contrast with GoPro’s pathetic numbers, Lumentum is consistently profitable, with revenue up 16% in each of the last two quarter and earnings up 191% in Q1 and 156% in Q2.

Lumentum’s product doesn’t take cute pictures of pug dogs in swimming pools. But if you want to know what a real growth stock’s chart looks like, that’s it right there.

And if you would like to see more great charts like LITE, Cabot Top Ten Trader will drop 10 of them in your lap every Monday, 50 weeks of the year.

For more details, click here.

Fortune Cookie

“Politics is the general art of getting votes from the poor and campaign funds from the rich, by promising to protect each from the other.”

-Oscar Ameringer 

Tim’s comment: Knowing this doesn’t solve any problems, but it should make one at least listen more skeptically to campaign promises. And, of course, there’s little connection to investing.

Paul’s comment: I picked this particular Fortune Cookie because there’s an election on and I like the gentle cynicism of its sentiment. But, unlike Tim, I think there’s an investing theme hiding in there. Lots of people try to sell you investing advice by promising an impossible combination of high potential and low risk. When you hear that, your BS detector should start beeping. Kind of like when almost any politician is speaking.


Timothy Lutts

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