In this business, achieving a 100% success rate is all but impossible. Eventually, you’ll come across a company that, despite your best analysis and reasoning, goes completely the opposite direction. Fitbit Inc (NYSE:FIT) is my poison. You won’t know it necessarily from its year-to-date performance, which is down nearly 5%. But recently, this company has disappointed more often than it has rewarded.
Much can be reversed with the upcoming FIT earnings report. One of the things that investors are looking for is whether Fitbit can survive the competitive onslaught. As everyone knows, Apple Inc. (NASDAQ:AAPL) offers an array of smart device options, including the Apple Watch. Understandably, critics ask why consumers should pay for a Fitbit device when they have multi-functionality with an Apple product.
My answer has always been the price point. Apple products are typically crazy expensive. Yes, you can opt for a cheaper model, but come on. The iconic consumer-technology firm generated a cultural element. In other words, you don’t want to be caught buying a cheapo version when you can have the real deal.
Additionally, Fitbit’s more extensive pricing options allows for enhanced business flexibility. A few years back, the company joined forces with Target Corporation (NYSE:TGT) in an effort to promote employee wellness. Part of this deal involved FIT giving away either a free device or a discounted one to Target employees.
Apple, for all its greatness, can’t afford to give away Apple watches to a large company like Target. Thus, Fitbit, and by logical extension, Fitbit stock, has greater reach.
Unfortunately, that hasn’t translated to market success. Against its initial public offering, FIT stock lost nearly 73%. Can a positive FIT earnings report change its trajectory?
Fitbit Stock Benefits From Reduced Expectations
The power of expectations can be crippling. We’ve all seen otherwise solid companies fall on less-than-stellar financial reports or forward guidance. At the same time, the lack of expectations can swing an organization the other way.
On paper, Fitbit stock has the potential to surprise. For the first quarter 2018, analysts expect earnings per share to come in at a 19-cent loss. This is right in the middle of the estimate spectrum, which ranges from -21 cents to -17 cents. However, most covering analysts anticipate that Fitbit will hit the lower end of the range.
In the year-ago quarter, FIT stock pared losses at -15 cents, with consensus calling for -19 cents. It’s worth noting that in the past four quarters, the company beat EPS estimates on the first three. Therefore, the risk of being overly bearish is that if FIT earnings deliver, shares can run-up in a hurry.
On the revenue side, analysts forecast $247.1 million. This is near the lower end of estimates, ranging from $244.1 million to $255.5 million. In the year-ago quarter, the company hauled in nearly $299 million. Thus, even if FIT stock beats to the upper revenue range, management is staring at double-digit losses.
Sales results and guidance is where Fitbit will make it or break it. From fiscal 2014 through 2016, the wearable-device maker grew at a blistering 83% average. But in 2017, revenue growth went sharply negative to a 25.5% loss. To address concerns with Fitbit stock, management must show some positive results and have a believable story moving forward.
Has Fitbit Stock Found Its Bottom?
If you don’t want to risk making a play on this upcoming FIT earnings report, I don’t blame you. I wholeheartedly admit that this is a risky play. Frankly, Fitbit stock has been much more a loser than a winner.Since Q4 2016, Fitbit stock appears to have found its bottom. The average share price on earnings day (including Tuesday’s close) is $5.65. Not only that, the high/low spread during this time frame is only 23%.
That tells me that bearish trading activity against FIT stock has been largely exhausted. I concede that anything and everything can happen on a day-to-day basis. However, the markets seem “bored” with Fitbit. If you’re working with a longer-term perspective, you could potentially sneak in some healthy profits.
Again, I reiterate that this investment is only for those who can stomach the risk. The company has significant headwinds it must overcome. Still, the lack of expectations might facilitate a surprising win.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.