GoPro (NASDAQ:GPRO), the maker of popular wearable cameras, recently made two changes to its product lineup. First, it cut the price of its Hero4 Session camera by $100 -- from $399 to $299. Second, it added a product to fill in the $199 price point. Could this move juice sales before the holiday season kicks in, or is it a desperate cry that says its products aren't selling well?

Gpro Heroplus

Source: GoPro.

Fixing a previous error?
The Hero4 Session, which received the $100 price cut, was only released this past July, so the price cut this soon is a surprise. Usually hardware companies don't cut the price until the product is getting old and a newer model is coming out soon, or if the competition pressures them to do it.

The Hero4 Session was greeted with mixed reviews when it made its debut. People liked the small form factor and the fact that it's waterproof without an additional case. But video quality wasn't as good as its higher-end siblings, and at $399 it was the same price. There was just no good reason to buy it over the Hero4 Silver model. GoPro may have realized its error and now given consumers a reason to go for the Session model at $299.

But $100 is a 25% price cut, which will definitely put a dent into gross margins for the model. That the company was so excited about the Hero4 Session and seemingly placing high hopes on it is also concerning.

On the other hand, the addition of the Hero+ product -- which the company describes as "The perfect entry-level GoPro + Wi-Fi" -- may help boost margins. The Hero+, retailing at $199, is one step up from the most basic entry model, the Hero, which goes for $129. For the additional $70, consumers get Wi-Fi and Bluetooth connectivity, as well as a bump up in the camera from 5 to 8 megapixels.

Time will tell, but I would wager that consumers will be willing to spend the extra cash for the very useful wireless features, and the additional components shouldn't cost GoPro much, which could boost gross margins. Note that the new Hero+ still doesn't have an LCD screen.

Where's the opportunity?
Investors have been concerned about GoPro's sales for a while. For all of its talk about additional products and opportunities ahead, GoPro still seems to be a one-trick pony, with wearable, action-oriented cameras as the only products.

Therefore, the recent price cut and new lower-priced product are worrisome. Businesses almost never slash prices or introduce lower-priced models unless sales are struggling. Also, with the stock down over 50% this year, management is no doubt feeling the pressure to do something about it.

The problem with almost all hardware manufacturers is the market eventually drives down margins until the product becomes more of a commodity. To its credit, GoPro has been trying to build an ecosystem of video sharing and licensing around its hardware to protect its margins and brand, but it doesn't seem to be a huge feature yet.

GoPro does have one potentially big opportunity on the horizon, though: drones. The company expects to have its own drone launch in the first half of 2016. With estimates of the drone market at $1.4 billion for 2015, but the potential to triple by 2017, the market is certainly nothing to sneeze at.

So where does this leave investors today? In the near term, GoPro has only one kind of product, which is probably not selling well given the price cut. So conservative investors may be best-suited to stay on the sidelines for now until there is more clarity on how holiday sales look or what margins do.

But for those who believe there's growth left in the action-camera market and also have the patience to see the company dive into the drone market, GoPro is looking much more attractive. The stock now trades at a much more reasonable P/E ratio of 26, compared with the stratospheric 85 from this past summer.

 

Chris Kuiper has no position in any stocks mentioned. The Motley Fool owns shares of and recommends GoPro. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.