I have a neighbor who absolutely must take 10,000 steps a day before she goes to bed. Using her reliable fitness tracker, made by none other than Fitbit Inc (NYSE:FIT), she’s giving herself a better chance at a long and fulfilling life. Bravo to everyone that follows her lead. However, making a $200 investment in a fitness tracker is a lot different than plunking down $2,000 or more on Fitbit stock.
Your fitness tracker may get you to your retirement in one piece — ready to enjoy 20 years of bliss — but your investment portfolio is what’s going to pay for it.
Whether FIT stock is $5 or $50, investing in the company’s future is a crap shoot at best and a sure recipe for indentured servitude at worst.
I’m a big believer in everyday investing — the concept of putting your hard-earned wages on companies you know and love — but that doesn’t mean you should throw your money blindly down a hole.
I have two rules for everyday investing:
- The company must make money on a GAAP basis.
- You don’t invest more than 10% of your portfolio in any stock regardless of whether it consistently follows rule No. 1.
InvestorPlace contributor Richard Saintvilus recommended to readers in late January against buying FIT because a number of issues, including short sellers, were conspiring against Fitbit stock; since then, it’s down 18% to all-time lows.
A few days after Saintvilus warned investors about further declines in FIT stock, I chimed in with my own opinion that investors neither buy or short Fitbit stock because its cash position, not to mention its still-healthy market share (albeit, shrinking by the day), would make it an attractive acquisition by a strategic buyer — I suggested Garmin Ltd. (NASDAQ:GRMN) but there are several candidates — someone larger that could protect it while it gets its act together.
Unfortunately, to sell, FIT co-founders CEO James Park and Chief Technology Officer Eric Friedman, along with venture capital investor True Ventures’s Jonathan Callahan, control 78.8% of Fitbit’s votes, must be convinced that it makes sense to save the company at all costs — including foregoing a multibillion-dollar payoff.
Fitbit went public in June 2015 at $20 per share and a $4.1 billion market cap valuation. As of Feb. 15, less than two years later, that’s down 68% to $1.3 billion. However, the trio took home $100 million in the IPO and $230 million in the secondary offering, a nice payday by anyone’s standard.
Bottom Line on Fitbit Stock
It seems odd that the company wouldn’t at least explore the option. Unless there have been no advances made by any of its competitors, opting to let it die of natural causes.
I’ve heard no speculation of vultures circling the company, but its most recent announcement that it was firing firing 6% of its staff as part of a plan to remove $200 million in annual operating costs could begin the banging of drums.
Let’s be real for a moment.
On Jan. 30, Fitbit announced a preliminary non-GAAP Q4 2016 loss of at least 51 cents per share, 69 cents worse than its previous guidance. In fiscal 2017, it expects a non-GAAP loss of 22 cents per share, perhaps as high as 44 cents, if things get really bad. This is clearly a violation of the first rule of everyday investing.
So, unless you are absolutely, 100% certain you can live without the $2,000, there are hundreds of stocks trading on U.S. exchanges that do make money on a consistent basis.
Apple Inc. (NASDAQ:AAPL) comes to mind. Why not start there? Or better yet, go out and buy yourself a Fitbit fitness tracker and if enough people do it, then maybe it starts to make sense as an investment at some point in the future.
Like my InvestorPlace colleague, I’m not convinced that Fitbit stock is worthless, or headed there. But investors have options, and right now this shouldn’t be one of them.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.