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Wearable Tech Stocks Are In Fine Fashion

3 October 2014 in Trading Ideas

It seems like GoPro may be in possession of the new-product magic often reserved only for the likes of Apple.

Shares of the wearable camera maker, which have surged in the past month, took another leg higher earlier this week after the company unveiled several new models. GoPro refreshed its Hero camera line with higher-end models that shoot higher-quality photos and video at faster frame rates.

The company also introduced an entry-level camera that is far cheaper than any previous model, according to the Wall Street Journal.1

Many analysts were as upbeat as investors. According to the Journal , JPMorgan analyst Paul Coster wrote to clients that “we believe demand may have outstripped supply and therefore the quarter is likely to come in at the high end of guidance range.”

Shares of GoPro have rocketed up nearly 70% in the past month, and have now more than tripled from their IPO price just three months ago.

GoPro also has an 18.5% weighting in the Wearable Tech motif, which is up 3% in the past month. During that same period, the S&P 500 has fallen 2.6%. Since its inception on January 9, 2014, the Wearable Tech motif is up 22.3% while the S&P 500 gained 7.5%.

The Journal mentioned that GoPro, which got its start as a maker of cameras focused on an outdoor-adventure customer base, has broadened its appeal and is now the top-selling camcorder in the world by volume, according to market researcher IDC.

The company generated about $1 billion in revenue and $60 million in profit last year.

That’s not to say the new GoPro models face no competition. However, Citigroup analyst Jeremy David said that a soon-to-come Sony Acton Cam mini selling for $250 to $300 and an upcoming Roam3 camera by Contour going for $200 are unlikely to put much competitive pressure on GoPro in the wake of the company’s new segmented pricing.2

Interestingly, David pointed out that he believed there would be demand for a high-end GoPro Hero4 model priced above $400 as “price elasticity of demand” for the GoPro is low if you are into action sports. “The purchase is aspirational,” David wrote.

Hmm – remind you of any other tech company?

Also helped by GoPro’s new launch were shares of camera sensor maker Ambarella, which Dougherty & Co. analyst Charles Anderson said he believed was supplying the video-encoding chip on all three of GoPro’s new devices.

Ambarella is hardly a household name at this point, but it wouldn’t be out of the question to see many of wearable tech’s future winners come from the ranks of the currently unknown.

1Steven Russolillo, “GoPro’s New Camera Power Shares to New Highs,” wsj.com, Sept. 29, 2014.
2Tiernan Ray, “GoPro Jumps 6% on New ‘Hero4′ Cams; FBN Ups Target to $90; AMBA Rising,” barrons.com, Sept. 29, 2014.