A Pair of Wearable Camera Plays

09/15/2014 8:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

In his Cabot Top Ten Trader, growth stock expert Mike Cintolo looks at the rising popularity of wearable action cameras and highlights a pair of leading players in this niche market.

GoPro (GPRO) is king of the wearable action camera. The company manufactures small, lightweight, and extremely durable high-definition cameras that allow consumers to easily record their adventuring escapades and then just as easily post and share those videos and pictures online.

GoPro’s flagship products include the HD Hero and the Hero 3+, which can download footage into GoPro Studio, the company’s desktop video editing application.

Although its most recent quarterly report raised a few eyebrows, analysts expect GoPro to have a big holiday season, and this is what’s behind the strength in GPRO shares.

Lastly, the company is expected to realize significant growth overseas, a market which GoPro is only beginning to tap into. Overall, GoPro earnings growth is expected to top 52% this year, while moderating to 24% in 2015.

After going public, GPRO vaulted from the low $30s to test resistance near $50 in just three weeks. However, the $50 region would cap GPRO for the rest of July and August.

But it appears ready to finally head higher. We like the shares of this volatile performer on dips of two or three points.

System-on-a-chip designer Ambarella (AMBA) is at the epicenter of the booming wearable camera craze. Its high-definition chips enable video cameras to be smaller and run on less power.

Two of Ambarella’s biggest customers are GoPro and DropCam—both listed among Amazon.com’s top five best-selling products. (Roughly 25% of Ambarella’s revenue comes from its deals with GoPro.)

The company has come on strong during the past couple of years, with GoPro spearheading the wearable camera movement. As a result, Ambarella has seen average quarterly revenue growth of 26% during the past year, with earnings growth averaging 32%.

Its strength comes as a result of its most recent quarterly report, in which Ambarella easily topped Wall Street’s earnings estimates and guided higher for the coming quarter.

The firm also noted that it’s looking beyond GoPro’s niche in the sports industry to police protection, drones, and security cameras.

Since going public in late 2012, AMBA has been on a steady upward trajectory, surging from near $7 to a high north of $36 this past January.

So far this year, AMBA has digested those rapid gains. Currently, AMBA is riding strong volume in the wake of its better-than-expected Q2 report. We suggest buying on dips.

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