FIT Stock – Fitbit Is Food for the Bears Now

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Fitbit (FIT) has managed to fight back from its September lows, currently up about 11% in the last month vs. less than 3% for the S&P 500. This puts the stock handily above its $20 IPO offer price, and above the opening price of about $30 for FIT stock.

fit stock FIT Stock   Avoid Fitbit in 2015However, it’s helpful to remember that Fitbit quickly ran up above $50, and many investors in FIT stock still aren’t back to square.

So, what’s going on with Fitbit? Should traders expect the recent uptrend to continue, or is the recent strengthening in FIT stock just a brief phenomenon before it retests recent lows?

For starters, let’s admit that volatility is the norm for recent IPOs like Fitbit. Whatever the longer-term trend is for FIT stock, it’s safe to say there will be plenty of big moves over the next few months.

But on balance, it seems that the bears are in control of FIT stock right now, and that Fitbit stock is doomed for further declines. Here’s why:

Sell Before Ugly Fitbit Earnings

Fitbit earnings in August left Wall Street wanting, and FIT stock shed 15% in short order after its first filing as a publicly traded company. Profits admittedly topped expectations, but a slowdown in revenue growth and weaker-than-expected margins had many investors worried that the company wasn’t as impressive as hoped — and a disappointment so soon was worrying indeed.

After all, at the time FIT stock was trading for a forward price-to-earnings ratio of nearly 50!

Things are more fairly valued for FIT stock now, with a forward P/E of around 36. That’s not unusual for a consumer tech company, however it’s still a bit rich for my taste.

Many other bears agree; short interest in Fitbit stock surged over 21% in the most recent data. Short interest now represents 44.6% of shares, with three days to cover the volume of shares held by short sellers!

The final nail in the coffin is that, even while shares have come back in the last few weeks, FIT stock is fighting to stay above its 20-day moving average and remains down by over 16% in the last three months. Those are not encouraging signs of investor sentiment.

FIT Stock Faces Disruption

It’s impossible to know how the long-term will play out, and many investors are banking on FIT hanging tough over the years, even amid some IPO volatility in 2015. However, even these buy-and-hold types shouldn’t forget the fickle nature of consumers and the tough competition in the fitness wearables market.

Tech firms such as Apple (AAPL) and private companies such as Jawbone have fitness wearables that have won good reviews.  There are also big hopes at companies like fitness apparel giant Under Armour (UA), which have brand appeal and are eager to get in on this budding market. So, even if you’re a patient Fitbit stock holder, there are no guarantees.

After all, wearbles themselves may be a fad that nobody can rely on. Consider Garmin (GRMN), a company that exploded in 2006 and 2007 with the rise of GPS navigation technology. The subsequent launch of smartphone maps, coupled with market saturation, left Garmin in the dust. Shares remain less than one-third of their all-time highs. The lesson? You never know what new device will disrupt existing tech.

After the first Fitbit earnings report, investors need to be very careful. Another bad showing could result in another double-digit decline for FIT stock. If that happens, there is very little reason to think sentiment will be anything but ugly for months to come.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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