Fitbit Inc (NYSE:FIT) just provided Wall Street with a much-needed first-quarter beat on both the top and bottom lines. In response, FIT stock is jumping by more than 10% in Wednesday’s after-hours session.
However, despite topping estimates, Fitbit’s earnings weren’t all that impressive.
The fitness tracker maker reported a loss of 15 cents per share for the quarter, down from 10 cents of net income in the year-ago period. On a GAAP basis, Fitbit lost 27 cents.
Meanwhile, revenues fell a whopping 41% to $298.84 million. Of the roughly $300 million in sales, $170 million came from the U.S. — that’s a 52% decline year-over-year. Notably, margins and average selling prices contracted as well.
Fitbit management is looking for a loss of 14 to 17 cents per share on sales of $330 million to $350 million next quarter. Analysts were looking for a loss of 11 cents per share on $350.2 million in sales.
And for the full year, analysts are looking for sales of $1.73 billion and a loss of 17 cents per share. Unfortunately, that’s better than management’s guidance calling for sales of $1.5 billion to $1.7 billion and a loss of 22 to 44 cents per share.
Trading FIT Stock From Here
Unless Fitbit management says something negative on the conference call, the stock is up. And while that may seem like a flimsy explanation for “good news,” it could mean that the bottom is in. Typically when a company comes out with not-so-great news and the stock trades higher, that’s a good sign. That means that investors have all but priced in the worst.
Yes, Fitbit beat earnings. But it reported a quarterly loss on a 40% sales decline, then management projected sales and earnings that were short of analysts’ estimates.
Don’t fool yourself. That’s bad news, and FIT stock is trading higher on it.
In a previous article in April, we made the case for owning Fitbit:
“If — and this is a big if — management can curtail its executional blunders and regain some momentum, Fitbit stock will likely bottom this year. For speculative buyers, maybe this is a level they feel comfortable buying at when sentiment is near its worst.”
However, I also stated that I’d rather miss out on initial gains to confirm the business is in better shape. I did not like Fitbit stock at the time, and am still leery of its business now.
On the charts, we can see that the 50-day moving average has acted as resistance — except on Wednesday, when FIT stock rocketed off that level. Shares kissed the 100-day MA and pulled back in the after hours.
It would be very bullish to see Fitbit clear the 100-day moving average, and maintain above it, in the coming days. It would put a potential gap-fill trade near $7.30 back on the table.
Investors looking to buy the stock can wait to see if the 50-day moving average holds as support and buy near that level. They could also consider buying near the $6 level. Again, this is assuming management doesn’t shift the landscape too much on the conference call.
I would not chase this run right now. If FIT stock trades favorably on Thursday morning and can hold for a couple of days, then this rally might actually have some legitimacy. Then, I would consider it on the long side.
Investors could use Wednesday’s low around $5.60 as their stop-loss.
Bret Kenwell is the manager and author of Future Blue Chips. He can be contacted on Twitter via @BretKenwell. As of this writing, Bret Kenwell held no positions in any security mentioned.
