It's Time to Short GoPro.... AgainGPRO) has created a lot of hype leading up to the launch of its Karma drone. Due to the hype surrounding Karma, GoPro has seen its shares bounce considerably from 52-week low levels. However, I think investors should consider shorting the rally as Karma isn’t likely going to change anything for the company.
If you remember correctly, GoPro delayed the launch of Karma earlier this year. The device was set to hit the market months ago. However, the company decided to wait out till the holiday quarter to release it in order to boost holiday sales.
While the delay did create a lot of buzz leading up to the launch, I think it was a wrong move from GoPro’s part.
Karma will have to have several new features to set it apart from its competitors and it will be very difficult for it to achieve. Moreover, GoPro probably decided to launch it in the holiday quarter to impress investors with good initial sales number. However, like action cameras, drones are probably a fad too, and strong initial sales will mean nothing for the stock in the long run.
I can’t see people spending hundreds of dollars every year to upgrade their drones.
Hence, while drones may lead to a temporary rally, GoPro’s long term prospects still look dim. Moreover, unlike in the action camera market, GoPro doesn’t have the early-mover’s advantage in the drone market and will find it very difficult to hack the segment.
Image by farioff / Pixabay
Although bulls may argue that GoPro has limited downside from current levels, I think the hype surrounding the Karma launch will die down soon, thereby pushing the stock lower. As a result, I think GoPro’s recent rally is a great shorting opportunity.
I have been recommending investors to short GoPro for almost a year now and the stock has fallen considerably since my initial recommendation. Going into the launch of Karma drone, I think the stock is overvalued and doesn’t have much upside to offer. At these levels, GoPro makes for a good short as I expect the hype surrounding the launch to die down in a few months. Although GoPro is trading under my initial price target of $15, I think investors can still benefit from shorting.
Disclosure: No Position
Published on Sep 19, 2016By Ayush Singh