Beware of the GoPro Stock Price Rally Today

The GoPro stock price jumped more than 6% intraday (Monday) to $16.44, bringing its weekly gain to nearly 20%.

But we're not buying this GoPro stock price rally...

Before we get into our outlook for the GoPro Inc. (Nasdaq: GPRO) stock price, here's what's driving shares higher today...

A Closer Look at Today's GoPro Stock Price Climb

The GoPro stock price has been rallying in anticipation of today's new product unveiling event.

At 9 a.m. PT, GoPro debuted its much-hyped Karma drone. Aimed at sports video enthusiasts, the buzz for the drone has been building for more than a year.

The new product expands GoGoPro stock pricePro's product line into the fast-growing (and getting crowded) drone market. The Karma will retail for $799, and it will cost $1,099 when paired with the Hero 5 camera.

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Right now, the global market for commercial applications for drones is estimated at about $2 billion. By 2020, that figure is expected to surge to as much as $127 billion, according to consulting group PricewaterhouseCoopers LLP.

According to the PwC report, the cost of drone technology has dropped significantly, making the everyday applications much more cost-efficient.

But as the market grows and technology advances, so does the number of competitors.

So despite the attention the company is receiving this week, GoPro's drone will face plenty of competitors when it goes on sale later this year.

GoPro hopes its drone, first teased in May 2015, will have an edge over rival drones because it should attract customers who are already loyal to GoPro.

In addition to the drone, the company also unveiled its new Hero 5 at today's event. The souped-up action camera, originally expected about a year ago, is compatible with Karma. Both the Karma and Hero 5 are expected to be in stores in time for the crucial holiday season.

It's much too early to tell if either or both will be hits. But there is one thing we can tell you for certain: This GoPro stock price rally is not a long-term bullish signal for the stock.

Why We Remain Bearish on the GoPro Stock Price

While the GoPro stock price is soaring this week, demand for GoPro's Hero action cameras has been fading.

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GoPro was one of the first companies to launch products of its type, but competition has been increasing. Plus, many people now rely on their smartphones for photos. Apple Inc.'s (Nasdaq: AAPL) just-released iPhone 7 sports its most advanced camera yet.

And it's yet to be seen if GoPro can effectively compete in the growing drone market. GoPro's biggest rival, DJI, offers a low-priced drone named the Phantom 3. The drone and its camera retail for $629.00. The Karma will cost an additional $170.

For us to change our view on GoPro, the company will have to stabilize earnings...

In Q2, GoPro reported an earnings per share (EPS) loss of $0.52. That compared with $0.35 per share in the previous year. Revenue in Q2 was $220.80 million, which was a drop of 47.7% from the previous year.

Analysts anticipate GoPro will post an EPS loss of $0.36 in Q3. Three months ago, analysts were expecting an EPS loss of only $0.26. For the full current fiscal year, GoPro is projected to post an EPS loss of $1.09.

That dismal outlook is a stark turnaround from two years ago, when the GoPro stock price was red-hot.

The GoPro stock price hit a record high of $98.47 in October 2014. At the time, Money Morning Chief Investment Strategist Keith Fitz-Gerald said that the excitement generated from the IPO was not warranted. He kept warning investors that the stock was a bubble that could burst at any time.

Fitz-Gerald nailed it. By August 2015, the GoPro stock price had plunged to $60.

"GoPro makes some really cool products, and they've got a rabid fan base of people who film themselves and others doing some truly outrageous things," Fitz-Gerald said in early 2016. "But that doesn't mean they've got sustained profit potential. The company has engaged in deep, deep discounting this holiday season, and that's going to eat into margins."

This holiday season will be telling. But we'll be watching the GoPro stock price from the sidelines...

The average analyst consensus rating on GoPro is "Hold" - Wall Street parlance for "soft sell."

The average price target is $13.12. That's below $15.75, where shares are currently changing hands.

Even with today's 5.6% gain, the GoPro stock price is down 13.05% year to date. Over the last year, shares are down a punishing 55%.

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