Karma Drone Will Be Big This Holiday Season, But Is It A Turning Point For GoPro?

Shares of GoPro Inc GPRO were trading higher by nearly 4 percent Monday, adding to the more than 45 percent gain the stock has seen over the past three months.

Investors have been buying GoPro's stock ahead of its Karma drone release, which is expected to become a must have gadget this holiday season. However, Alex Arnold of Detwiler Fenton is cautioning investors not to buy into the hype.

In a report on Monday, Arnold acknowledged that while the Karma drone could "move the needle," investors that are banking on the fact that the drone would offset weakness in the camera segment could be wrong.

GoPro is "desperately seeking a growth catalyst" to offset the "softening" of its core product of action cameras.

Related Link: GoPro's Karma Drone Is Coming September 19: This Year's Christmas Gift?

Arnold said his channel checks lead him to believe the Karma drone is "very little but also very sophisticated." Nevertheless, it's much smaller size compared to an industry leader DJI Phantom makes GoPro's ability to work through wind "an issue."

Arnold added that at a price tag of $800, GoPro should be able to move 200,000 to 300,000 units through the holiday season. However, taking the midpoint of 250,000 and factoring in a 25 percent take for retailers, GoPro faces a $150 million opportunity - well short for a company that saw sales of $1.24 billion over the past 12 months and has shown a year-over-year revenue decline near 50 percent over the past few quarters.

"Will drones turn the tide for GoPro," Arnold hypothetically asked in his note. "We doubt it, but it should present some stabilization at the same time that the cleaning up of Session inventory stops hampering margins. Drones are not likely to prove the lift that will turn the company, but they've been enough to lift the shares about 15 percent last week in the run-up to the Karma launch."

Bottom line, the analyst said it's yet to be determined how Karma will sell but "it will be interesting to see if today for GoPro shares is one to sell on the news or if investors hold out hope that this a turning point."