We’re barely more than a month into 2016 and shares of Fitbit (FIT) stock are worth half of what they were when the ball dropped. After going public for $20 per share and peaking at just over $50, Fitbit stock is now trading for just over $15.
This rollercoaster ride comes with several important lessons for investors. When Fitbit first burst onto the market, I reminded investors that investing in IPOs is always a bit of a gamble. The recent plunge reminds us why the gamble with Fitbit stock was two-fold.
The first half of the gamble has to do with the company’s product, which I was and still am a fan of. As I’ve noted before, it’s promising that Fitbit has a big-time mega-trend at its back — something called the “quantified self.” And while there is plenty of chatter about competition from Apple (AAPL), Under Armour (UA) and others, Fitbit is a first mover in the space.
The upside to being an earlier player in a growing space is obvious. Unfortunately, the downside has been just as obvious lately as well. There’s plenty of promise when it comes to Fitbit’s exciting tech products, but there’s arguably just as much uncertainty.
That uncertainty is amplified when you consider it in relation Fitbit stock, which hasn’t even been public for a year. Anytime a company first goes public, there’s some uncertainty about how the company will be valued. And this is especially true in the world of tech.
What to Do With Fitbit Stock
Tech IPOs have dramatically slowed in recent months, but before that, many companies were being flooded with late rounds of funding before hitting Wall Street. That boosted valuations dramatically, which left a long way for Fitbit to tumble when investors decided they no wanted to stomach much uncertainty.
So what exactly should investors do when the stock of a company producing a promising tech gadget starts to free-fall? Well, a few things.
The first thing is to assess the drivers of the selloff. In the case of Fitbit stock, investor fear is largely just part of the market environment right now, with Wall Street plagued by volatility, trigger-happy sellers, plunging oil prices, weakness in China and … well, you get the point.
While there are company-specific drivers, Fitbit stock is far from an isolated incident. A laundry list of tech darlings that are relatively new to the public market have fallen below their IPO prices, while even more established cut players like LinkedIn (LNKD) and Tableau (DATA) have suffered dramatic haircuts.
With that in mind, the best course of action is to keep an eye on Fitbit stock’s fundamentals as the stock is in free fall — especially sales, earnings, market share and valuation. Relative to its past premium, Fitbit stock looks like a bargain right now, but investors aren’t easily impressed these days.
The key is to keep a close eye on projected growth to see if enough appears to be in the pipeline to please Wall Street and make Fitbit stock look like a clear bargain considering its first-mover status in a growing industry.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
