Fitbit, Inc. Stock: Is a Recovery in Store for FIT?

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Health fitness products firm Fitbit, Inc. (FIT) has had a rough year. Year-to-date, Fitbit stock is down nearly 60%, and the shares have been hovering near all-time lows near $12 for most of the past week.

Fitbit, Inc. Stock: Is a Recovery in Store for FIT?However, FIT has shown signs of life recently, bouncing back to reclaim its 10-day moving average. With earnings less than a month away and the stock looking at recovery, now may be a prime time to look at a Fitbit options trade.

Fitbit has yet to set an official date, but the company should release its second-quarter report in the first or second week of August — just ahead of monthly August option expiration.

Currently, Wall Street is expecting a profit of 11 cents per share (down nearly 50% year-over-year) on revenue of $577.86 million (up 44.3% year-over-year).

Turning toward Fitbit stock’s sentiment backdrop, we find a fair amount of pessimism. According to data from Zacks, 10 of the 22 analysts following Fitbit stock rate it a “hold” or worse.

That said, the 12-month consensus price target of $21.94 represents a massive premium of more than 75% to the Fitbit stock’s current trading range.

Short sellers, meanwhile, have loaded up of FIT stock. As of the most recent reporting period, roughly 33.8 million shares of Fitbit stock were sold short, representing about 26% of FIT’s total float.

The stock’s recent annual low may have prompted a round of profit taking, however, as short interest declined 6% in the latest period. Should earnings prompt an acceleration to short covering, it could provide considerable buying power for Fitbit stock.

Fitbit Stock
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Options traders remain quite bullish on Fitbit stock heading into next month’s quarterly report. Currently, the July/August put/call open interest ratio for FIT arrives at 0.67, with calls nearly doubling puts among options set to expire within the next two months. This ratio dips only slightly to 0.60 for the August 19 series.

Overall, August 19 series implieds are pricing in a potentially sizable post-earnings move of nearly 19% for Fitbit stock. This places the upper bound at about $14.89, while the lower bound lies at near $10.13.

A post-earnings plunge would put FIT at fresh all-time lows, while a rally would put Fitbit stock back above all but one of its short-term daily moving averages.

2 Trades for Fitbit Stock

Call Spread: With Fitbit stock trading near all-time lows and the stock looking to rebound from oversold levels, I’m inclined to bet on an earnings bounce this time around. Traders looking to side with the FIT stock bulls might want to consider an August $14/$15 bull call spread. At last check, this spread was offered at 33 cents, or $33 per pair of contracts.

Breakeven lies at $14.33, while a maximum profit of 67 cents, or $67 per pair of contracts, is possible if Fitbit stock closes at or above $15 when August options expire.

Put Spread: For those traders who believe that Fitbit is still facing significant headwinds, an August $10/$11 bear put spread should fit the bill. At last check, this spread was offered at 38 cents, or $38 per pair of contracts. Breakeven lies at $11.62, while a maximum profit of 62 cents, or $62 per pair of contracts, is possible if Fitbit stock closes at or below $10 when August options expire.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/07/fitbit-fit-stock-move/.

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