Shares of GoPro (GPRO -2.86%) have fallen more than 60% over the past 12 months, and many investors believe that the stock could fall even further in the near future. As of Aug. 24, 33% of the action camera's outstanding shares were being sold short, making it the 16th most shorted stock on the market.

Image source: GoPro.

While heavy short interest might spark a "short squeeze" rally on any positive news, I believe that the short sellers are right about GoPro for five simple reasons.

1. Slowing sales growth

GoPro's year-over-year revenue growth has remained in negative territory for three consecutive quarters. Revenue fell 47% annually in the second quarter of 2016, compared to respective declines of 50% and 31% in the first and fourth quarters. Those declines were attributed to sluggish demand for action cameras and the absence of new flagship Hero devices.

Analysts believe that the launch of the Hero 5 and Karma drone during the holiday quarter could boost the company's fourth quarter revenue by 54%. But even factoring in that boost, GoPro's revenue is still expected to fall 14% this year, compared to 16% growth in 2015 and 41% growth in 2014.

2. Contracting margins

GoPro's gross margins (non-GAAP and GAAP) have also been declining year-over-year for the past three quarters. Some of those declines can be attributed to the company's self-inflicted wounds with the Hero 4 Session repricing and higher sales of lower-margin devices like the Hero, Hero+, and Hero+ LCD. Other declines can be attributed to rising competition from cheaper rivals in the action camera market.

During the second quarter, GoPro's non-GAAP gross margin fell 400 basis points annually to 42.4%. Soaring expenses resulted in a non-GAAP operating loss of $89.3 million, compared to an operating profit of $65.8 million a year ago. As a result, GoPro's non-GAAP EPS fell from a profit of $0.35 to a loss of $0.52 per share. Analysts expect GoPro to finish the year with a 242% drop in non-GAAP earnings.

3. The Hero 5 probably isn't a big upgrade

GoPro claims that sales of the Hero 5 and Karma will help it return to profitability during the fourth quarter. Unfortunately, recently leaked specs for the Hero 5 indicate that it might barely be an upgrade from the two-year-old Hero 4 Black.

According to Mirrorless Blog, the highest quality video mode for all Hero 5 models will be 4K at 30 fps, which is the same as the Hero 4 Black. The new features could include a built-in touchscreen, slightly larger battery, waterproof housing, a built-in GPS, support for voice controls, image stabilization, and support for the new cloud service GoPro Plus. However, it's unclear if Hero 4 Black owners would be willing to pay $400 to $500 more for those new features.

Image source: GoPro.

Many of GoPro's rivals now offer comparable cameras at lower prices. Yi Technology recently released a 4K camera, powered by the same Ambarella (AMBA -3.42%) chipset as GoPro's Hero 4 Black, which also adds a bigger battery, built-in touchscreen, and image stabilization for just $250.

Alphabet's (GOOG -1.10%) (GOOGL -1.23%) YouTube, which previously tapped GoPro to produce a 16-camera rig for its Jump VR platform, also signed with Yi to produce a cheaper rig. Other companies like Samsung now sell cheaper 360-degree cameras, which could attract more attention than the Hero 5 this holiday season.

4. The Karma could crash

GoPro will unveil its long-delayed Karma drone on Sep. 19. However, a recently leaked design indicates that the Karma will resemble other quadcopters on the market and be sold as a backwards compatible accessory for its cameras. The problem with that strategy is that the market is dominated by drones with built-in cameras.

DJI's Phantom 4, the most popular high-end drone on the market, sports a 4K camera and costs $1,400. Earlier this year, Apple (AAPL -1.22%) gave the Phantom 4 feature bays at over 400 of its brick-and-mortar stores, and let DJI employees offer in-store demos and lessons. Meanwhile, Xiaomi recently launched a 4K drone with a flight time comparable to that of the Phantom 4 for just $450 -- $50 less than GoPro's Hero 4 Black.

Competing in this cutthroat market with separate cameras and drones is risky, because the combination might cost over $1,000. Unless the Karma can offer truly standout features, it could be buried beneath DJI, Parrot, and other market leaders this holiday season.

5. Insiders hate the stock

With the stock trading at just 1.6 times sales and big product launches, like the Hero 5 and Karma, on the way, insiders should be buying up GoPro shares. Yet GoPro's insiders have sold 2.78 million shares over the past six months without buying a single share.

This indicates that the Hero 5 and Karma could disappoint the market, causing GoPro's sales and earnings to continue sliding. Therefore, I believe the short sellers are right about GoPro -- there could be a lot more downside ahead for this one-trick pony.