Fitbit Inc (FIT) stock is starting to form an ugly little habit. Every three months, Fitbit, like every other public company in America, reports its results to the public.
Unlike every other public company in America, however, Fitbit has beaten both earnings and revenue expectations every single time.
And, quite unusually, FIT stock has plummeted immediately thereafter every single time. Sure, it’s only been public for three full quarters, but it’s a trend worth noting.
Fitbit stock owners might understandably be confused as to why this frustrating pattern has emerged. I would know — I’m a shareholder myself. So let’s see what Wall Street finds so horrendous about consistently kicking butt.
Fitbit Stock: If It’s not X, It’s Y
Fitbit’s holiday quarter was remarkable. Revenue surged 92% year-over-year, jumping from $370.2 million to $711.6 million, breezing past the $647.8 million analysts expected, and easily surpassing the company’s own guidance for revenue in the $620 million to $650 million range.
What’s even better for Fitbit stock is where that revenue is coming from, as 79% of revenues came from its newer fitness-tracking products — the Fitbit Charge, Fitbit Charge HR and Fitbit Surge.
That’s in stark contrast to a company like GoPro (GPRO), which has seen its stock plunge as its latest product, the GoPro Hero4 Session, was an absolute flop. GoPro was forced to slash the price of the small mountable camera from $399 to $199.
And you won’t find much reason for FIT stock to sell off in its earnings numbers, either. Fitbit earned an adjusted 35 cents per share last quarter, 40% better than the 25 cents per share analysts were looking for.
The devil was in the forward guidance, which was soft — but only for the first quarter. Fitbit forecast first-quarter revenue between $420 million and $440 million, and adjusted EPS between zero and two cents. Wall Street was looking for 24 cents per share and revenue of $484 million.
I see why some shortsighted traders might sell FIT stock on that news.
What Investors Miss With FIT
Those traders are missing the reason that Fitbit stock issued disappointing guidance: It’s ramping up production and juicing its marketing efforts as it executes its first-ever global launch of new products, the Fitbit Blaze and Alta.
Due to the timing of shipments, the company expects the majority of reorders to come in the second quarter, diverting some revenue to Q2.
Keep in mind that full-year guidance is still more or less in line with Wall Street’s projections. Wall Street expects Fitbit stock to produce revenue of $2.42 billion in FY2016 and earn $1.14 per share. Fitbit is calling for between $2.4 billion and $2.5 billion in revenue, and EPS between $1.08 and $1.20.
I think Fitbit stock is an absolute steal right now. Unlike GoPro, it’s revenues aren’t declining year-over-year. It’s growing like crazy! And when you consider the fact that Fitbit has beat on EPS — and pretty substantially, mind you — every quarter as a public company, you might start to figure out that the company simply issues conservative guidance.
In fact, CEO James Park has said that his philosophy is to “never have a bad quarter.” To me, that says that he is openly admitting he gives soft guidance, so FIT can exceed expectations. Even if Fitbit merely matches Wall Street’s full-year 2016 estimate of $1.14 — something I consider highly unlikely given the trends I’ve outlined above — Fitbit stock would currently be trading at a mere 11.8 times 2016 earnings.
That, for a company growing at this blistering pace, is quite a steal. While short-term sentiment may be negative, I think investors with longer time horizons will be well-rewarded if they buy into FIT stock now.
As of this writing, John Divine was long FIT. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
