I’m not a huge believer in Fitbit Inc (NYSE:FIT). The wearable maker pioneered an era of fitness trackers, but it did so at a very basic and rudimentary level. Then, once there was proof of concept in the market, bigger players like Apple Inc. (NASDAQ:AAPL) advanced the market with more complex smartwatches. Fitbit was left in the dust.
That is why FIT stock has fallen so far. Whereas this was once a $50 stock with a whole bunch of bulls, FIT is now a $5 stock with a whole bunch of bears.
Count me as one of those long-term bears.
But even as a long-term bear, I know that good money can be made off FIT stock as an earnings play. After all, short interest is still high, meaning most traders are essentially on the bear side of the trade. Therefore, any good news could cause a near-term breakout in Fitbit to the upside.
I think FIT could deliver that good news in its Q1 earnings report. As a result, I think Fitbit stock looks like a good trade here and now. Its a risky play, so this isn’t a “put the farm on it” move. But I wouldn’t be surprised to see FIT stock soar after Q1 earnings, and I think its worth putting a few bucks to work here.
Here’s a deeper look:
Fitbit Versa Launched to Solid Demand
My research indicates that things at Fitbit have improved substantially since we last heard from management in late February.
Since then, search interest related to “Fitbit” has improved dramatically, according to Google Trends. In January and February, Fitbit search interest was plunging on a year-over-year basis. Then, in early March, that trend started to reverse, and search interest growth has been largely positive since, including a few 20%-plus growth weeks in the back-half of April.
Why the big turnaround? It looks like the catalyst is excitement surrounding Fitbit’s newest smartwatch, Versa. Also according to Google Trends, Versa search interest has quickly climbed and continues to make new all-time highs. Reviews on Versa are also broadly positive, as the watch appears to be a cheaper version of its predecessor, the Ionic, with a better look and fit.
Broadly speaking, the Versa’s quick rise in popularity has had a positive affect on Fitbit’s overall smartwatch business. Search interest related to “Fitbit watch” and
“Fitbit smartwatch” have both benefited from a notably large spike recently.
As such, it seems like the Fitbit Versa has launched to robust demand. If so, that could cause some short covering and a subsequent rally in FIT stock. Many bears thought that Versa would be a flop like Ionic, but early signs indicate that isn’t the case.
Older Products Remain Challenged
Although Versa looks like it had a really good launch, it also looks like Fitbit’s older products continue to decline in popularity, underscoring the biggest risk to this company long-term — that its new smartwatch initiatives are cannibalizing its old wearables business.
Search trends related to Fitbit’s older products are quite bearish, and point to continued declines in popularity. Meanwhile, Amazon.com, Inc. (NASDAQ:AMZN) is running a huge sale on a slew of Fitbit’s older products, including the Charge 2, Alta, and Ionic. This feels like an inventory-clearing sale, which implies that Charge 2, Alta, and Ionic haven’t sold too well in recent months.
Consequently, the big risk to a post-earnings pop for FIT stock is weakness everywhere else outside of Versa. If that weakness is more than enough to offset Versa strength, then Fitbit stock could actually drop quite a bit after its earnings report.
Bottom Line on FIT Stock
Fitbit stock isn’t without risk here. But it looks like Versa had a really good launch, and if management plays that up well enough in the call, then FIT stock could soar after its Q1 earnings report.
Plus, Fitbit just announced a big partnership with Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOG) which shows that Fitbit’s whole data-driven, enterprise-partnership growth narrative isn’t dead after all. Again, if management plays this up well enough in the call, FIT stock could be given some extra fire-power.
As of this writing, Luke Lango was long FIT, AAPL, AMZN, and GOOG.
