Fitbit Inc (NYSE:FIT) is showing signs of life thanks to its latest corporate confession. Fitbit beat earnings expectations on Wednesday night, and announced that its long-awaited smartwatch will debut later this year, in time for the holidays. FIT stock is rocketing higher by 15% on Thursday morning in response.
But are shares still worth the time? Let’s take a look on and off the charts at the latest evidence, then offer up an opinion on how to (or whether to) position yourself in Fitbit shares.
Just when it appeared Wall Street had left FIT stock for dead, the health and fitness technology outfit pulled off a better-than-expected earnings report worthy of a fresh look.
Last night, Fitbit topped analyst sales and earnings forecasts on revenues of $353.3 million and a smaller-than-expected loss of 18 cents per share. Wall Street had expected the company to deliver sales of $339.17 million and bleed 22 cents per share in red ink.
A slightly deeper look at the results showed the company sold 3.4 million of its wearable devices for Q2, up 14% sequentially. The company’s results also were complemented by the Fitbit app holding the top spot for health and fitness downloads on Apple and Android platforms and sales, showing strong repeat purchase demand nearing 40%.
Looking ahead, Fitbit expects to deliver stronger sequential top and bottom-line results for Q3 with an estimated sales range of $380 million-$400 million, and a much narrower loss of 2-5 cents per share.
Part of the optimistic outlook is riding on the company’s first “real” smartwatch launch later this year. CEO James Park assured investors the product will power a stronger second half and further help Fitbit leverage its unique position, brand, community and data over the long haul.
The report and upbeat outlook from Fitbit’s management sounds good on the surface. And the company’s still-healthy playing position does conjure up imagery of FIT stock recapturing its former glory, but in a more sustainable way.
On the other hand, I’d offer out a “not so fast” word of caution to investors.
For one, there’s much less buzz over the wearables market and amid a crowded and competitive field of retail and tech giants like Apple Inc. (NASDAQ:AAPL) and Garmin Ltd. (NASDAQ:GRMN). And that 3.4 million units did fall short of analyst estimates.
Not to mention, there’s the stock chart.
How to Deal With FIT Stock
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The potential bad news is shares have also been flirting with the $5 level over this period.
For many investors, better or worse, $5 is a key make-or-break price for institutional investors looking to put money to work. And right now it’s simply too difficult to determine whether the flatlining will turn into a more severe respiratory infection, or if FIT stock can be declared healthy in a more meaningful intermediate-term price trend.
FIT shares are up an impressive 15% this morning, no doubt some of that coming on a short squeeze; roughly 27% of the float was sold short as of the most recent data. Still, FIT shares were at this level (around $5.80) just a couple of months ago and couldn’t hold it
Until Fitbit actually digests this action and holds on to it for a couple days, it’s difficult to make a high-conviction position as a bull or a bear at the moment.
My suggestion? If you feel more strongly — in either direction — I’d still recommend setting a countdown timer of a few days. At that point, you can take a second look at the stock, which at that point will have digested any upgrades or downgrades, not to mention the crowd’s reaction.
Investment accounts under Christopher Tyler’s management currently own no positions in any of the stocks or their derivatives mentioned in this article. 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 and StockTwits.
