Fitbit Inc (NYSE:FIT) stock has been left for dead by Wall Street. But is there a pulse here worthy of a long position? Let’s take a look at Fitbit both off and on the chart and then offer a limited-risk and healthier alternative to FIT stock using options.
It has been a tough couple years for Fitbit since going public in mid-2015. FIT stock has fallen by about 90% since a high of $51.90 was reached only a couple months later as Wall Street’s buzzword of the day, “wearables,” hit a chord with investors — and one many now regret ever hearing.
But at today’s sub-$6-a-share price, is the Fitbit story and FIT stock really dead for good or is this simply a health scare and an opportunity to get long?
Fit Stock Looking … Good?
In making the bull case for FIT stock, it is recognized that competition from Apple Inc. (NASDAQ:AAPL), Garmin Ltd. (NASDAQ:GRMN), Nike Inc (NYSE:NKE) and Under Armour Inc (NYSE:UAA) has already deeply impacted Fitbit’s once top-dog status, margins, sales, profits and the like.
That, of course, doesn’t sound like great news for FIT stock’s health long-term. And the recent business trend punctuated by Fitbit’s mostly terrible Q4 report late last month reflects an increasingly difficult environment in an extremely fierce market niche.
On the other hand (or maybe wrist), with plenty of cash to continue its operations for the foreseeable future, book value of more than $3 a share, a price-to-sales ratio of just 0.62, positive cash flow and a market cap of just $1.3 billion, there’s certainly a foundation for FIT stock as a turnaround story.
This past week, the company did show modest signs of life in reviving itself after it revealed its new and apparently well-received, Alta HR activity tracker. For their part, shares of Fitbit tracked higher by about 5% on the report.
Looking forward, multiple acquisitions this past year by the company are moving its product mix towards more full-featured smartwatches and away from its activity-tracker origins. In turn, this could better position the company into a wearables market that will continue to morph and grow in the coming years.
Further, with over 23 million users and given FIT stock’s valuation, who’s to say the competition isn’t eyeing Fitbit as an effective way to continue to build their own market share or as a target for private equity? You won’t get an argument here that Fitbit could go from acquirer to being acquired.
And lastly, support can be made on the price chart as well. Though, not everyone is buying the idea that FIT stock is capable of rising from the dead, as shares still sport a hefty short interest of 36% by last count.
Fitbit Stock Weekly Chart
Technically speaking, to say shares of FIT have been running downhill is a big understatement. And while some trends don’t in fact change and instead simply die, Fitbit is showing signs of life on the weekly chart.
Turnaround plays like this aren’t for the faint of heart, but FIT stock is now attempting a breakout of a minor, i.e. left for dead, downtrend line. In conjunction with an improving and bullishly divergent stochastics picture and given that Fitbit’s business isn’t entirely on life support just yet, a speculative long position looks attractive.
FIT Stock Long Call Strategy
Reviewing the Fitbit stock options board, the May $7 call for 20 cents with shares at $5.97 looks attractive. An expiration a move of more than 21% is required to break even. That may sound like a tough nut to crack and I agree to a certain extent.
Optimistically though, with FIT stock attempting to break out from its minor downtrend, heavy short interest and a bearish gap that would be filled just above the purchased call strike price, the required move to just break even appears less far-fetched.
Even more agreeable, were a bullish price reaction to occur in Fitbit sooner rather than later, profits and opportunity to ride the call through an early May earnings event for free or even a credit, could be a possibility and something to consider with this speculative, but less-risky, long in FIT stock.
Investment accounts under Christopher Tyler’s management currently own no positions in securities or their derivatives mentioned in this article; though Mr. Tyler proudly wears a Garmin Fenix 2 watch. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
