Tags: Technology

The GoPro Stock Price Rally Won't Last into 2016

By , Contributing Writer, Money Morning •

The GoPro stock price climbed nearly 12% on Thursday, and that has many investors bullish on the future for GoPro Inc. (Nasdaq: GPRO) stock.

But we don't see the GoPro stock price rally continuing into 2016...

The GoPro stock price got a boost when rumors swirled that Apple Inc. (Nasdaq: AAPL) might buy the struggling wearable camera maker. The gossip came after FBR & Co. analyst Dan Ives said in an investor note that buying GoPro would make sense for Apple.

go-proSuch talks have been around for months but until yesterday, they had no positive impact on the sinking GoPro stock price.

In September, Gus Richard of Northland Capital said GoPro would make a "compelling acquisition target for Apple."

While the acquisition rumors have some investors bullish, the rumors are really all that GoPro has going for it right now. You see, the picture for the GoPro stock price looks ugly as we head into 2016...

GoPro Stock Price Woes Will Continue

The company's July launch of its ice-cube-sized camera has disappointed. Dubbed the Hero4 Session, the camera was GoPro's attempt at an entirely new design from its traditional action-camera models.

But the Hero4 hasn't sold well. And GoPro has been forced to cut the price twice.

GroPro trimmed the Hero4 price by 25% in late September. Earlier this month, the company slashed the price again. The Hero4 now sells at half of its debut price of $400. While that could boost sales, it will also eat into the company's gross margins.

The Hero4 was expected to be a hot seller this holiday season, but projections for the Hero4 have since cooled.

In October, GoPro forecast that revenue would decline 17% year over year in Q4. That's a stark turnaround for the company, which had averaged quarterly growth of 47% over the previous eight quarters.

And that's not the only problem on the horizon for the GoPro stock price...

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Ambarella Inc. (Nasdaq: AMBA), which makes chips for GoPro's cameras, warned in early December that revenue for its fiscal Q4 ending in January will miss expectations. Ambarella cited GoPro's mushrooming inventory levels as the key reason for the revenue shortfall.

Money Morning Chief Investment Strategist Keith Fitz-Gerald has been bearish on GoPro stock for months and suggested readers short the stock at $31.22.

Investors who took his advice are now looking at a gain of more than 35%.

Fitz-Gerald says anyone thinking of buying into GoPro stock at these low levels should think again.

Even though the GoPro stock price has fallen all the way to $18.38, down 71% year to date, Fitz-Gerald set a much lower price target for GPRO in October. Last month, he said the GoPro stock price should be $15 per share.

"Driven by hype and very clever investment banking, stocks that are breathlessly celebrated by Wall Street often have terrible fundamentals and little or no promise of ever enriching anybody except their founders and early VC investors," Fitz-Gerald said. "Yet they rise like a rocket after their initial public offering, luring millions of investors to their financial demise."

Friday, Citigroup downgraded GoPro to "Neutral" from "Buy." The firm admitted they "got it wrong" on their July upgrade. Citi noted the Hero4 price cut suggests demand is easing and is a sign of consumer disinterest.

On Dec. 4, Robert W. Baird downgraded GoPro to "Neutral" from "Outperform." The firm noted Ambarella's dispiriting comments for the downgrade.

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