It’s hard to believe, but Fitbit Inc (NYSE:FIT) and FIT stock went out the door almost two years ago with a $4 billion market capitalization and a $20 IPO share price, above its $17 to $19 price range.
Fitbit’s first day as a public company went exactly as IPOs priced above a filing’s price range historically have been known to do — FIT stock jumped almost 50%.
It has been downhill ever since.
Currently trading around $5.4, investors are left wondering if Fitbit stock is the ultimate value play — and the best $5 stock available.
According to Finviz.com there are 51 stocks with a market cap of $1 billion or more and a share price of $6 or less; FIT stock being one of them. Among the motley crew of stocks are a bunch of companies from both the financials and basic materials sectors as well as a decent-sized representation from the technology sector (Fitbit included) and a smattering of representation from other sectors.
Is FIT Stock the Best for $5?
I’ve identified one stock from basic materials I think has a chance to rebound as well as one from financials.
At the end, I’ll decide if FIT is the best $5 stock available.
I’m a big fan of Latin America.
The value available in stocks, especially in Brazil, is better than almost anywhere else in the world with the exception of Russia. Brazil’s cyclically adjusted price-to-earnings ratio (CAPE) was 9.8 at the end of 2016, one of the 10 lowest anywhere in the world. By comparison, the CAPE for the S&P 500 is 29.
Brazil’s economy is coming on and even though the Brazil stock market had a huge year in 2016, up 63%, I believe it’s got plenty of room to grow as investors rotate out of developed markets like the U.S. and into emerging markets like Brazil.
So, the basic materials stock I’m going with is Companhia Siderurgica Nacional (ADR) (NYSE:SID), an industrial conglomerate based in Brazil that generates $5.3 billion in annual revenue, most of it from the production of steel and iron ore. Its adjusted EBITDA in the first nine months of fiscal 2016 increased by 10.2% to $905.8 million.
SID stock had a great year on the heels of a strong Brazilian stock market gaining 231% in 2016. Year-to-date it’s down 25%. Trading significantly lower than its 5-year high, I like the value offered by its stock.
My reasoning was simple: Aegon pays a very healthy dividend that currently yields 8%, isn’t in danger of being cut, and is successfully transforming itself from an insurance company to a financial solutions company where clients aren’t just about premiums and risk.
Since I wrote about Aegon Mar. 20, its stock is down 15%. In my eye, that makes it an even better value. Like SID, it’s trading way off its 5-year high of $9.50. Patient investors will reap rewards.
When a stock loses 75% of its value the first thing investors do is determine why that has happened. In the case of Fitbit stock, it’s pretty obvious.
In the span of five fiscal years the company’s revenues have grown 2,700% to $2.2 billion. The bad news is that all but 17% of this growth came prior to 2016. The company basically hit a wall and began to lose market share. On top of that, it expects to lose as much as $0.44 on a non-GAAP basis in 2017.
FIT stock is cheap for a reason.
However, InvestorPlace contributor Josh Enomoto’s argument that people need fitness and that Fitbit’s fitness trackers go a long way to helping people get in shape holds water.
The only question I have is whether Fitbit can remain the biggest in market share long enough to deliver an annual profit on a GAAP basis or be bought out by larger competitor.
Bottom Line on Fitbit Stock
If you’re a speculator, FIT stock is the ideal play at these prices. If you’re a buy-and-hold investor, I believe there’s too much risk associated with owning Fitbit.
You’re better to own AEG if you’re a more conservative investor and if you’re like me and believe in the future for Latin American stocks, SID also makes sense, but only as a non-core and tiny piece of your investment portfolio.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.