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1 Growth Stock Down Over 90% to Buy Right Now

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After struggling for years, this company is turning a profit again, and its even changing minds on Wall Street.

A stock that loses over 90% of its value is inherently risky. In fact, a fall of that magnitude would usually indicate the company is likely to fail, and that's a fate very few operators can reverse. 

But action camera leader GoPro (GPRO -1.14%) is beating the odds to rise from the ashes with renewed optimism, thanks to innovative revenue streams that are turning the company's fortunes around. 

After listing publicly in 2014, GoPro stock hit an all-time high of $93.85 but has steadily declined to the roughly $8 price it trades at today. Here's why now is the time to add it to your portfolio.

Image source: Getty Images.

Righting the ship

GoPro has always been at the top of the action camera industry because of its relentless focus on innovation. But in the years following 2014, growth in its business began to stagnate, which diminished the number of resources it had available to invest in its products. Put simply, there was an expiration date on GoPro's one-dimensional business model of selling cameras and not much else.

Additionally, the company has always relied upon large retailers to sell its products to consumers. For a brand with 46 million followers across all social media platforms, which has found success targeting a relative niche group of extreme sports enthusiasts, it was a strange choice not to engage customers directly on the sales side.

But in 2021, there was some improvement in that area. The GoPro.com website accounted for 34% of the company's total sales for the year, proving that at least some of its customers prefer buying from the brand directly. It's beneficial for a couple of reasons. First, selling products directly to the consumer means GoPro keeps all the profit, rather than sacrificing a cut to the retailers. Second, driving traffic to the GoPro.com website allows the company to upsell, cross-sell, and generally build a deeper relationship with each customer.

And that appears to be happening, with GoPro unlocking a brand-new revenue stream in the form of subscriptions. 

But with all of these operational improvements, the key thing to watch is the end result. In September 2021, the company released its HERO10 Black action camera, capable of filming in 5.3K high-definition, with groundbreaking video stabilization technology. It marks further progress in GoPro's innovation, especially because it sells the camera for $499, crushing the closest competitor, which is priced at $3,500.

The subscription revolution

For any company, the best thing about subscriptions is their recurring nature, meaning the customer pays monthly or yearly, over and over again, until they decide to stop. Additionally, subscription revenue typically has a high gross profit margin, which in GoPro's case can be up to 80%. 

Brand loyalists have been rushing to purchase GoPro.com subscriptions for $49.99 per year, unlocking exclusive discounts, live streaming capabilities, and unlimited cloud storage. This revenue stream of $53 million accounted for 5% of GoPro's 2021 revenue, but as the subscriber base continues to expand, it will become an increasingly important part of the company overall -- especially from a profitability standpoint.

Metric

2020

2021

Growth

GoPro.com subscribers

761,000

1,576,000

107%

Data source: GoPro. 

The company's new Quik camera and editing smartphone app are also included with every subscription, but it's also available as a stand-alone offering. GoPro has acquired 221,000 subscribers for the app alone, separate from the GoPro.com subscriber numbers. At just $9.99 per year, Quik doesn't generate a great deal of revenue, but it helps the company acquire new customers who don't already own GoPro cameras.

In addition, it's the first step in GoPro's plan to offer more stand-alone software, which includes a desktop application slated for release in 2022, opening even more revenue streams.

Wall Street is on board

Naturally, analysts haven't loved GoPro stock over the last seven years, as its decline has wiped out a mountain of shareholder value. But the tide is turning. 

Analysts at Wall Street investment bank JPMorgan Chase think the stock could soar to $15 a share, representing 87% upside from its current price. And while JPMorgan holds the highest price target, it's definitely not alone in its newfound bullish sentiment, with rival Wall Street titans Morgan Stanley and Wedbush Securities also predicting upside from here. 

The credit is well deserved, as the company has not only recovered from a dismal situation but is also even turning a profit again with $0.90 in 2021 earnings per share. That places GoPro stock at a price-to-earnings multiple of just 8.8, meaning it would need to triple just to trade in line with the broader tech sector, represented by the Nasdaq 100 index, which trades at a multiple of 30. 

But whether you look at GoPro's current valuation or the analysis on Wall Street, one thing is clear: There's a good chance this stock is heading much higher.

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