Fitbit (FIT) Stock Looks Poised for a STELLAR Quarter

Analysts are underselling its revenue growth ... by quite a bit

Fitbit (FIT), the leader in wearable fitness tracking devices, has enjoyed a phenomenal run-up this year.

FIT, fitbit stock, fitbitFIT stock went public at $20 a share back in mid-June, and shares immediately jumped 50%, settling around $30 at the close of its first day trading.

All to often, the day-one IPO surge is short-lived, and a few months later the stock is trading back below its IPO price. Not so with Fitbit, whose stock is up 26% from its first closing price less than six months ago.

Can Fitbit stock continue its red-hot run after reporting third-quarter earnings on Monday afternoon? Only time will tell, but the signs look bullish to me.

Fitbit Earnings Preview

Consensus Wall Street estimates call for FIT stock to earn 10 cents per share in the quarter that ended Sept. 30. But the real rub is the consensus revenue estimate, which calls for $350.97 million in sales over that period. Although that implies revenue growth of 130% from year-ago revenue of $152.9 million, it actually seems conservative.

Extremely conservative.

In both Q3 of 2013 and Q3 of 2014, Fitbit increased sales dramatically from the previous quarters. Revenue jumped from $47 million to $83 million from Q2 ’13 to Q3 ’13, and from $113 million to $152 million from Q2 ’14 to Q3 ’14.

But after posting revenue of $400 million last quarter (that was Q2), Wall Street is calling for Fitbit to sell just $350 million? That doesn’t seem right.

I understand that the market has a certain saturation point, but I think analysts are selling FIT stock short with their current expectations.

Despite a lack of big gift-giving holidays in Q3, corporate wellness initiatives should provide some degree of sales boost. Target (TGT), for example, is offering Fitbits to 335,000 employees in an effort to keep employees healthy. Bank of America (BAC) and Time Warner (TWX) also have corporate accounts with Fitbit.

Analyst John Kernan of Cowen also thinks that Google (GOOG, GOOGL) search trends bode favorably for FIT stock and third-quarter earnings in particular. Fitbit search trends are up 100% year-over-year, he says.

Yes, there’s competition from the likes of Apple (AAPL) and Jawbone. But the wearables market is growing so quickly that at this point, there’s room for everyone. Plus, the Apple Watch hasn’t exactly been a blowout success.

Another, more subtle, reason I think FIT stock is poised for a pop after earnings is the outlook of its CEO and cofounder, James Park. Back in July he was asked about the quarter-to-quarter scrutiny Fitbit stock would attract from Wall Street and investors.

He shrugged off the question, replying simply: “My outlook is never have a rough quarter.”

Although FIT stock did fall as much as 15% after its last quarterly announcement, it wasn’t because of a bad quarter. It easily beat on both EPS and revenue, but investors got skittish about falling margins.

Fitbit is still young as a public company, but Park’s vow has held true so far.

As a shareholder myself, I’m a believer, and with the holiday season coming up, there’s still plenty of runway for this rapidly growing company.

As of this writing, John Divine was long FIT stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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