A little over a year ago I posted an article calling GoPro wildly overvalued at a price of $75 per share. I argued that the barriers to entry and the growth opportunities simply could not support a price-earnings ratio of over 250. Suppose you agreed and decided to go short GoPro or write call options. When do you make money? Not until the market agrees with you. And as Keynes noted nearly a century ago who knows when that will be. The fact is that to make money, particularly on short positions, it is not enough to be right - the market has to accept your conclusion.
What is odd that such agreement tends to arrive suddenly and for unclear reasons. Since I posted my blog, Go Pro has done very well - sales and profits have both been growing sharply. But not as sharply as investors apparently hoped. In the last couple of months, the stock price has collapsed to less than 30, down more than 60%. But the decline was hardly linear. In fact, following the post the stock got as high as $90 per share. I still believe that in the long run fundamental investing is the only way to make superior risk adjusted returns. But waiting for the long run may be harrowing.
PS. Currently, the P/E of GoPro has fallen to about 25. In my view, the stock is now about fairly priced.