Being a macro guy, I am usually the last to know about some high-flyer infinite P/E stock. Those things just aren't on my radar. In fact, usually by the time I find out about them, it's time to sell them.
So I think it's noteworthy that it took until two days ago for me to pull up a chart of GoPro (GPRO), a stock that has probably been known to readers for quite some time. Remember, I tend to find out about these things on the highs.
GoPro sells HD cameras that you can attach to a bike or a surfboard. OK, in the event that you haven't heard of this company before, close your eyes and try to imagine a market cap for this company.
What did you come up with? As of a few days ago, it was $11 billion.
Sure, they're great cameras. And as we're finding out, their potential applications go far beyond surfing or mountain biking. For example, in law enforcement there is growing pressure for police officers to wear body cameras.
Even still, an $11 billion market cap is pretty generous unless we're talking about a truly transformative technology. It's a camera.
We went through this a few years back, remember the Flip camera? That lasted about a year. Smartphones starting coming with video cameras, and that was the end of that.
And that is the knock on GoPro, too -- that the next iteration of iPhone will be waterproof and attachable to your surfboard. And that's a pretty big knock.
I don't really want to get into the quality of management (seems inexperienced), the company's strategic vision (I disapprove) or the fact that Nick Woodman, the founder, just gifted half a billion of stock to a charitable organization before the shares had even vested. None of these things give me a warm fuzzy feeling.
What I really want to talk about is that only in a market this fluffed up can you get a camcorder stock up to an $11 billion market cap and have people talk discuss it with a straight face. There is a reason the market is having a massive correction ¿ it's because of excesses like this.
GoPro is not the worst company in the world, and it is selling a legitimate product. But as of a few days ago, did you know that the combined market caps of GPRO and Mobileye (MBLY) exceeded that of Newmont Mining (NEM)? That's just senseless.
I'm overall net short, and I was really happy in the middle of the day yesterday, and less happy toward the close. The bond market got pretty silly on the open yesterday, and that might be panic low in yields.
But I think equity investors have gotten off pretty easily so far. This is not even a 10% correction yet. You don't go from top tick to capitulation in three weeks. Corrections take time to play out, to go through each phase of denial and acceptance.
Somehow, I don't think this will end until we have experienced a serious financial accident.