Drones are about to start taking off for GoPro (NASDAQ:GPRO), but it's stock is getting a head start on the levitation. Shares of GoPro soared 16.4% last week, as excitement continues to build for the long overdue Karma drone.
A bullish analyst note obviously helped. The stock moved 6% higher on Friday, fueled by Bank of America/Merrill Lynch's initiation of coverage of GoPro with a "buy" rating and a $19 price target. However, the stock had already been on the move since the leading maker of wearable cameras went public with the Sept. 19 date for Karma's unveiling. Friday's bullish nod was just the cherry on top.
The actual recovery in GoPro's stock began months ago. The stock has soared 74% since bottoming out in May.
Boo birds arrive
But not everyone's gushing over GoPro stock these days. Barron's was critical over the weekend.
"Beware of the hype," Barron's Alexander Eule warns, arguing that product delays and the inability to follow up on 2014's Hero 4 success make this a dangerous rally to buy into these days.
"With overall sales falling, the company needs the product to succeed," he concludes. "That could prove challenging."
He's not the only one who isn't sold on seeing this stock bounce stick. There were 30.8 million shares of GoPro sold short by the end of August. That represents 22% of the shares outstanding, but more importantly for short squeeze purposes, those 30.8 million shares represent more than a third of the stock's float.
There are a lot of people assuming the rally won't last or that the Karma and the highly anticipated Hero 5 wearable camera won't be the catalysts GoPro needs to sustain its recent resurgence as a market darling.
There's a lot riding on Karma and even more at stake with the market's reception to the Hero 5. Will the products be game changers? Drone sales may have peaked in 2015, at least at the consumer level. Wearable cameras could have peaked during the 2014 holiday quarter.
GoPro's financial performance has been brutal, even through the past few months of the stock's rebound. GoPro revenue slipped 31% during last year's holiday quarter when pitted against 2014's peak. Revenue has plunged 48% through the first half of this year.
The stock's ability to hold on to last week's gains and even the past few months of meatier gains relies on the success of Karma and Hero 5 at this moment. There are, however, other factors that can give the stock a fighting chance to keep rolling. GoPro has done a good job of clearing out channel inventory that has weighed on sales. Retailers no longer have a glut of unsold Hero cameras and accessories. And GoPro is also making big bets in content distribution and software, factors that could make it easier to survive the ups and downs of hardware cycles.
However, last week's rally comes with the hope that the Karma lives up to the buzz that GoPro's promotional teaser trailers have been promoting. More details on the Hero 5 and a firm release date for that product also can only help. GoPro's rally has been impressive, but now it has to earn those gains.