Fitbit (FIT) wasn’t just new to the stock market this year. In a way, it was the stock market.
No, not like Apple (AAPL) used to influence the direction the Nasdaq went — Fitbit is nowhere near that important. But the performance in Fitbit stock since its June IPO was almost a microcosm of how the market performed in 2015: volatile, full of sharp upswings and steep downturns, but ultimately flat in the aggregate.
Fitbit stock burst out of the gates, fueled by high anticipation for a new wearable product that a lot of people like.
After going public at $29 in mid-June, the stock surged to $51 by early August. It turned out to be fool’s gold. Right about that time, early fervor over FIT subsided, the market had its biggest collapse in four years, and a month later the stock was back near its IPO price.
Since then Fitbit stock has ping-ponged between a high of $40 and a low of $26, opening just under $29 as of this morning. In other words, it’s essentially back to square one after six months of trading.
Fitbit Stock at a Crossroads
So where does Fitbit stock go from here? Now that the initial excitement surrounding the IPO has evaporated, let’s start by taking a sober look at the sales numbers. They tell a pretty encouraging story.
Through the first three quarters of 2015, FIT sales have grown 210%, 253% and 168%, in that order. That’s some serious growth. Earnings have been less spectacular, but fine, with the 24 cents per share reported in the third quarter easily topping analyst expectations of 10 cents per share. For the year, FIT is anticipating EPS of $1.01; it expects those numbers to rise to $1.13 in 2016.
So, if lack of top- and bottom-line growth isn’t the problem, what is? Two words: lockup expirations.
The company agreed in November to an early release of its lockup restrictions, meaning insiders who got in early on the stock were free to sell off after a four-month restriction period. Sure enough, 2.3 million shares were sold, or about 10% of the company’s outstanding shares.
That release took effect on Nov 4. Not coincidentally, Fitbit stock is down 24% since then.
Between the November lockup releases and the post-IPO hangover that plagues so many big-name stocks (or do you not remember Facebook’s (FB) nightmare first year?), I think FIT is poised for a big bounce back in 2016.
The company’s earnings and sales (33% projected growth) are expected to keep expanding next year, and lockup expirations are behind them. Now when investors look at Fitbit’s long-term picture, they may like what they see.
FIT Is a Buy in 2016
Trading at 25 times next year’s earnings estimates, FIT isn’t overly cheap. But that’s common for tech stocks. It’s a pittance compared to the likes of FB, Netflix (NFLX) and Amazon (AMZN), all of which carry price-to-earnings ratios that are well into triple digits.
My biggest concern about Fitbit is that, like GoPro (GPRO), it’s a bit (no pun intended) of a one-trick pony. You can buy Fitbits in different sizes and colors, and some perform more functions than others; but in the end, they’re all digital bracelets you strap on your wrist to monitor your steps, sleep, heart rate, etc.
But it’s still early for Fitbit. The company is only eight years old and has only been trading for six months. I doubt investors will get bored of it already, so long as the sales and earnings growth remains strong. Long term, the company will need to innovate more and expand its product offerings to remain relevant.
But because this is strictly a 2016 outlook, I think if you buy Fitbit stock now you’ll do very well next year. Like the stock market as a whole, look for FIT to whip itself into shape in the New Year.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
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