Not even four months removed from its June 26th IPO, ultra-portable video camera maker GoPro (GPRO) has seen its stock price gain over 300% from its initial offering price, peaking at over $98. Since its IPO, GoPro’s stock has been one of the top performing securities in the market, and was up an astounding 80.89% in September alone (one of the most volatile months on record). However, a Piper Jaffray (PJC) analyst recently downgraded GoPro from "Outperform" to "Neutral," citing the company’s unusually high valuation as a sign of limited growth potential. This resulted in a pullback that has since disrupted the stock's momentum. 

Although volatility is a common trait of companies that issue public offerings, GoPro dropped 15% after its August earnings release, which is unflattering to investors. Not to mention GoPro has received many bullish and bearish analyses, both of which usually cite controversial advantages. Yet, for investors who currently own GoPro shares, or for those who want to, these debates help expose the most important issues. The two most divisive senior arguments relate to GoPro’s potential as a media company, and the barriers to entry for its competitors.

To start, let’s examine GoPro’s products and competition. Currently, GoPro’s lineup of rugged, portable cameras dominates the market. The company recently announced the release of its newest camera series: the HERO 4 Black. This new camera is twice as responsive as the previous HERO 3 Black and shoots video in 4K resolution (4x times the resolution of 1080p). Starting at $499.99, the HERO 4 Black is also the most expensive GoPro product to date. However, the company compensated for this price hike by simultaneously releasing its cheapest entry-level camera to date, the HERO. At a lower price of $129.99, the HERO provides consumers with a cheaper camera option; the features are not as impressive as the HERO 3 and 4, but the HERO's low price point provides GoPro with an opportunity to capture a previously untapped market segment.

In terms of competition, GoPro’s market share remains essentially uncontested since its rise to the forefront of the portable video camera market, especially after its largest competitor, Contour, failed. Although Contour was actually bought out of bankruptcy in April of this year, the company doesn't currently pose any real threat to GoPro. In fact, GoPro’s largest competitor is Sony (SNE), since it has the necessary capital for R&D. Surprisingly, Sony made portable video cameras long before GoPro came into existence. However, even with its head start, Sony has yet to release a relevant mobile action camera. That being said, GoPro's largest threat comes from tech giants Apple (APPL) and Google (GOOGL). Although these companies are currently focused on wearable technology, like smart watches and glasses, they have the resources necessary to commoditize portable video cameras. Luckily for investors, Apple or Google would most likely acquire GoPro as opposed to devoting resources to R&D.

In my earlier GoPro article, I cited the impact of GoPro's internal media development on its future growth. Although I do still believe GoPro will develop a media “network,” I am notably less enthusiastic about its potential to help generate revenues. In its amended annual prospectus, GoPro stated, “we expect to begin earning revenue from GoPro Channel advertising and sponsorship opportunities on Xbox Live and GoPro Channel advertising on YouTube and Virgin America in the second quarter of 2014. We do not expect the revenue earned from these GoPro Channels to be material to us in 2014.” I do believe GoPro's YouTube channel will continue to be an important branding tool, as the company requires an advertising platform for new products. Nevertheless, if GoPro executives don't expect to monetize this “network," neither should investors. Moreover, with well-established companies like Red Bull and ESPN already dominating extreme sports broadcasting, it’s hard to imagine GoPro in the mix. The company's real advertising potential could come from professional sports sponsorships. Imagine if every NFL player wore a GoPro, or if soccer pitches were lined with the cameras during the World Cup. This may be a long shot, but I believe GoPro can navigate its way into mainstream professional sports, while simultaneously maintaining its extreme sports core. However, we cannot forget that ESPN’s professional sponsorships are worth far more than any deal GoPro could offer.

As an investment option, I maintain my stance that GoPro is a solid long-term investment. However, at its current price, GoPro is trading at over 100x forward earnings, leading to an outlandish valuation that far exceeds common sense. If you want to buy GoPro shares wait for another stock market correction, or a temporary lull in this bull market. In conclusion, I believe that, in any case, GoPro will settle at a more reasonable valuation within the next 12 months as its post-IPO hype dwindles.