It’s hard to get excited about Fitbit Inc (NYSE:FIT) stock knowing what we know about the company’s declining revenues and market share loss. Trading near a 52-week low of $5.31, Fitbit stock is not something conservative investors should touch with a ten-foot pole.
Down 26.7% year-to-date and more than 70% below its $20 IPO price, only the most risk-tolerant investors need to apply.
In April, I recommended FIT stock as the best $5 opportunity available but prefaced the statement by warning it was only fit for speculative investors. Nothing’ has changed in the weeks since including Q1 2017 results that beat analyst expectations for both revenues and earnings.
Truthfully, its results were dismal, and the competition is getting fiercer by the day. Despite the difficult battlefield upon which Fitbit finds itself, InvestorPlace contributor Lucas Hahn thinks its rewards outweigh its risks.
I would tend to agree.
Three Strengths for FIT Stock
Hahn highlighted its cash position and valuation as reasons why someone might buy Fitbit stock. I think there are three things to like about FIT’s balance sheet — things that will keep it afloat until someone comes along and buys it out, putting it out of its misery.
Net Cash
Fitbit has a strong cash position with no long-term debt and $726.1 million in cash. As Hahn stated in his article, Fitbit could go 12 quarters without having to raise fresh capital. That’s got to be very attractive to private equity firms.
Retained Earnings
They might be shrinking — they’ve declined by 70.3% or $201 million over the past two quarters — but they’re still positive. In Hahn’s article, he compares Fitbit to GoPro Inc (NASDAQ:GPRO) suggesting it’s an easy choice between the two wearables manufacturers.
One look at GoPro’s balance sheet, and it’s easy to see why he feels this way. GoPro’s retained earnings over the last four quarters have gone from positive $37 million to negative $370 million — a $407 million descent into the toilet.
Goodwill and Intangible Assets
At the end of Q1 2017 (April 1, 2017), Fitbit’s goodwill and intangible assets were $77 million or just 5% of its total assets. GoPro, on the other hand, had $177 million in goodwill and intangible assets, 24.8% of its total assets.
Again, from a private equity purchase point of view, FIT’s balance sheet would be a heck of a lot more palatable to any buyer of the company.
Bottom Line Fitbit Stock
Again, I’m not suggesting you buy its stock for your retirement portfolio, but up against the likes of GoPro and others losing money, it has a better than 50/50 chance of being bought out for considerably more than its current share price.
According to FIT co-founder and CEO James Park in the company’s Q1 2017 release:
“Underlying consumer demand has been better than our reported results in North America as we work down channel inventory levels, giving us increased confidence that we will enter the second half of 2017 with a relatively clean channel … While 2017 remains a transition year, we have executed on our restructuring plan and are focused on positioning the company for the next stage of growth within wearables and connected health.”
As risky investments go, Fitbit is not so bad, especially when you take into consideration the relative strength of its balance sheet. I think you could do a lot worse. I consider it one of my top speculative picks at $5 or at any stock price for that matter.
If you’ve got the stomach for it, Fitbit stock’s a buy.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
