When I last checked in with health fitness products firm Fitbit Inc (NYSE:FIT) the company had yet to set an official date for earnings, and Fitbit stock was rebounding off all-time lows.
The shares have since begun to trend higher, and the trip to the earnings confessional is set for Tuesday next week after the close. With earnings now less than a week away, and the stock looking to breakout above some key technical levels, let’s take another look at a Fitbit earnings trade.
Starting off by revisiting earnings expectations, Wall Street is expecting a profit of 11 cents per share (down nearly 50% year-over-year) on revenue of $578.48 million (up 44.5% YoY). However, EarningsWhispers.com data points toward a more bullish outlook with a whisper number of 15 cents per share.
What’s more, bullish sentiment is rising in the analyst community. According to Zacks data, 12 of the 23 analysts following the stock rate it a “buy” or better, up from 11 two months ago.
At the same time, the 12-month consensus price target of has slipped to $21.63 from $21.94 when I last checked in with Fitbit stock. The current target still represents a sizeable premium of more than 59% to FIT stock’s current trading range, but the gap has narrowed from a 75% premium on July 7.
Short-sellers, meanwhile, are beginning to have second thoughts about Fitbit. In fact, the number of FIT shares sold short declined by 5% during the most recent reporting period. Still, roughly 43.6 million shares of FIT stock are sold short, representing 34% of the total float. Once again, if earnings prompts an acceleration in short covering, it could provide considerable buying power for Fitbit.
Click to Enlarge Options traders have taken an optimistic stance on Fitbit stock heading into next week’s report. Currently, the July/August put/call open interest ratio for FIT arrives at 0.80, with calls outnumbering puts among options set to expire within the next two months. Furthermore, this ratio dips sharply to 0.25 for the weekly Aug. 5 series — i.e., the one most affected by earnings.
Overall, Aug. 5 series implieds are pricing in a post-earnings move of nearly 14% for Fitbit stock. This places the upper bound at about $15.45, while the lower bound lies at near $11.55.
2 Trades for Fitbit Stock
Call Spread: Earlier this month I suggested a Fitbit stock Aug $14/$15 bull call spread. With FIT continuing to move higher, and sentiment improving, this trade still has plenty of potential following a positive earnings reaction. At last check, the August $14/$15 bull call spread was asked at 31 cents, or $31 per pair of contracts. Breakeven lies at $14.31, while a maximum profit of 69 cents, or $69 per pair of contracts, is possible if Fitbit stock closes at or above $15 when August options expire.
Put Spread: For those traders looking for Fitbit stock to reverse course in the wake of Tuesday’s quarterly report, an Aug $11.50/$12.50 bear put spread should fit the bill. At last check, this spread was offered at 32 cents, or $32 per pair of contracts. Breakeven lies at $12.18, while a maximum profit of 68 cents, or $68 per pair of contracts, is possible if Fitbit stock closes at or below $11.50 when August options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
