Thrill is gone for GoPro shareholders

Published Fri, Sep 4 201512:03 PM EDT

GoPro was one of the hottest momentum stocks last year surging 30 percent on its June IPO day and then rallying 100 percent into the end of 2014. The problem with high multiple stocks is when the sentiment turns, things can get ugly fast. GoPro shares are down approximately 40 percent in the past month even after it reported second quarter results in July that handily beat Street estimates. Investors are getting worried that the product cycle may be slowing and the market is getting saturated. "(GoPro) is a niche product who I believe every investor knows will become less and less popular with every life cycle of product. How many parents have bought their child a GoPro only to see it sit in the top drawer?" said Andrew Left of Citron Research. He added, "whoever on Wall Street thought first person video of a 12-year-old skateboarding was transformative or compelling was drinking some real Kool-Aid. Why should this be any different than that instamatic camera?" Skepticism of GoPro's sustainability increased this week after Ambarella , a key image processing chip supplier for the company, reported earnings on Tuesday. "This is the first time Ambarella hasn't raised next quarter's guidance significantly higher than Street estimates in the past year," noted a hedge fund investor. Read More Is Netflix the next momentum name to fall? Some Wall Street analysts cut GoPro's estimates this week on concerns of a growth slowdown from guidance out of Ambarella. The supplier projected sales growth would slow from 79 percent year over year in the second quarter to as little as 37 percent in the October quarter. "Although Ambarella results do not necessarily correlate to GoPro given timing, mix, and other customer impacts, the shift is dramatic enough to lead us to decrease our (GoPro) September quarter revenue expectations to flat sequentially," JMP Securities' Alex Gauna wrote in a note to clients on Wednesday. Other analysts pointed out this lowered guidance likely means there is no blockbuster product this holiday out of GoPro to drive demand for Ambarella's chips. "Ambarella intimates no GoPro product refresh for upcoming holiday," Raymond James' Tavis McCourt wrote in a note Wednesday. "Unless GoPro has a product launching with a different image processing vendor, which would be a first for the company, it is looking more likely that the GoPro Hero4 Session was the company's biggest product launch of the year." GoPro did not immediately respond to a CNBC request for comment. The sell-side hasn't given up on GoPro yet. Almost 70 percent of Wall Street analysts that cover the company have a buy rating with an average 12-month target price of $73.50 according to FactSet, representing 90 percent upside from Thursday's close. Though the main issue now for GoPro investors is if the company doesn't come out with new differentiated products in the immediate future and growth decelerates, the shares will lack any positive catalysts to turn sentiment around. Read More An unlikely winner during correction: Cablevision On the flip side, it is a difficult short now traders say unless the company misses earnings dramatically in the coming quarters. After the selloff, GoPro is now trading at more reasonable valuation of a little less than 20 times next year's earnings. The most likely outcome may be continued volatility, so most investors and traders recommend staying away.

A man looks at GoPro Inc. cameras on display during the 2015 Outdoor Retailer Summer Market show at the Salt Palace Convention Center in Salt Lake City, Utah.

George Frey | Bloomberg | Getty Images

GoPro was one of the hottest momentum stocks last year surging 30 percent on its June IPO day and then rallying 100 percent into the end of 2014.

The problem with high multiple stocks is when the sentiment turns, things can get ugly fast.

GoPro shares are down approximately 40 percent in the past month even after it reported second quarter results in July that handily beat Street estimates.

Investors are getting worried that the product cycle may be slowing and the market is getting saturated.

"(GoPro) is a niche product who I believe every investor knows will become less and less popular with every life cycle of product. How many parents have bought their child a GoPro only to see it sit in the top drawer?" said Andrew Left of Citron Research.

He added, "whoever on Wall Street thought first person video of a 12-year-old skateboarding was transformative or compelling was drinking some real Kool-Aid. Why should this be any different than that instamatic camera?"