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2 Big Reasons to Buy This Beaten-Down Growth Stock

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This stock has been a rough ride for investors, but its fortunes are certainly turning around.

The technology sector has been especially volatile over the last six months as investors weigh the impacts of economic shifts related to higher interest rates and geopolitical tensions in Europe. Many individual tech companies have lost 50% (or more) of their value in that timeframe amid the sell-off. But for one tech stock, the decline actually began eight years ago.

Shares of action-camera industry leader GoPro (GPRO -1.14%) have declined by 91% since hitting their all-time high in 2014. The company has struggled to grow what had been a one-dimensional camera hardware business. But over the last few years, it has diversified its revenue streams and convincingly turned things around.

Here are two reasons you should buy the stock now and hold it for the long term.

Image source: Getty Images.

The booming subscription business

Designing and manufacturing action cameras has always been GoPro's specialty. But the company is having great success with its new subscription products, and it's beginning to leave its mark as a software player, too.

Approximately 221,000 people are paying $9.99 per year for GoPro's Quik smartphone app, which is designed to improve the native camera on your phone with advanced features and editing tools. The goal is to capture new customers who are outside the GoPro ecosystem -- although the math suggests Quik is only responsible for about $2 million of the company's $1.16 billion in annual revenue right now.

The second (and more important) subscription is priced at $49.99 per year. It gives brand loyalists exclusive product discounts on GoPro.com, unlimited cloud storage, and the ability to live stream directly from their GoPro cameras. The company says 1.6 million customers have now subscribed, and this alone could generate $90 million in revenue during 2022.

This is worth watching closely because GoPro says it's currently working on a desktop software product designed for photo and video editing. This will be offered as yet another subscription, giving the company more ways to make money.

GoPro profits are soaring

One benefit of subscriptions is their rich gross profit margin, which can be as high as 80%. It's helping to lift GoPro's overall gross margin, with help from the company's new direct-to-consumer sales model.

GoPro used to rely solely on large retail stores to sell its cameras. Now, it's making 34% of its sales directly to customers through GoPro.com, which allows the company to keep a larger share of the profits.

The bottom line: a soaring bottom line.

GoPro has successfully righted the ship, transitioning from a loss in 2018 to consistently positive earnings-per-share results.

This is important as it offers a reliable way to value GoPro stock. Right now, it trades at a price-to-earnings multiple of 9. By comparison, the Nasdaq 100 technology index trades at a multiple of 33, which implies GoPro would need to more than triple in value just to trade in line with the broader tech market.

It might take a couple more years of solid operational performance before investors have the confidence to take GoPro stock that high. But in the shorter term, investment bank JPMorgan Chase thinks it could climb to $15 a share, which represents a 79% upside from today's price.

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