Shares of Fitbit Inc (NYSE:FIT) have been on fire, with Fitbit stock rising roughly 40% in June alone. It’s obviously been a massive rally and has led to an overbought condition in the stock. But there’s reason for some investors to believe that it could have more room to run.
So what’s sparking this run? Stocks don’t just rally 40% in two weeks and 65% from the April lows without a catalyst.
What’s Moving Fitbit Stock
In late April, Fitbit announced it’s teaming up with Alphabet Inc (NASDAQ:GOOGL)(NASDAQ:GOOG) for healthcare purposes. With Google’s help, Fitbit can leverage the cloud, machine learning and other technologies to bolster its technology offering. The company’s focus on healthcare is what’s helping drive it higher.
The company reported its quarterly results in May and they were better than expected, but certainly not great. Revenue fell 17% year-over-year and FIT reported a loss-per-share rather than earnings-per-share. But overall, the outlook for Fitbit was mixed, to be honest.
But the company’s conference call played an important role, especially when it came to its healthcare potential. Co-founder, chairman and CEO James Park said:
“We continue to make progress on deepening our reach into health care and see ongoing evidence that payers are embracing wearable devices and beginning to provide financial incentives to consumers that change their behaviors.”
“We believe that technology in wearable devices had flipped the traditional narrative in health care, empowering consumers with real information about their health. We believe this presents an opportunity to leverage our brand, engage consumers and change their behaviors.”
They talked about partnerships with UnitedHealth Group Inc (NYSE:UNH) and emphasized how its partnership with Google would allow for increased efficiency. They also talked about how valuable their healthcare data will become as their devices and software gains in usage.
Indeed partnering with Google, insurance companies and DexCom, Inc. (NASDAQ:DXCM) — one of the largest glucose monitoring companies — leaves the door wide open for Fitbit.
Potential for FIT Stock
So what does all this mean for Fitbit stock? In May, several analysts slapped an $8 price target on the stock. That leaves about 10% upside from current levels on the table. Right before earnings, another analyst slapped a $10 price target on Fitbit stock. That was Alex Fuhrman of Craig-Hallum and even after the big rally, it still implies more than 30% upside from here.
The one that really got Fitbit stock moving came from Citron Research. Andrew Left argues that Fitbit stock is going to $15 this year. That is, unless another company swoops in and snatches it up.
Can Fitbit stock do it? He argues that Fitbit is transitioning from a “dead” step-counting fitness tracker to a high-potential med-tech device company. If so, its $1.5 billion market cap (plus a premium) is a relatively low price to pay for an acquirer — especially considering the market-leading Apple Watch from Apple Inc. (NASDAQ:AAPL) isn’t something M&A buyers will ever pry away from Apple.
Could it be Google? Perhaps, as it’s shown to not be afraid of acquisitions in the past. We’ll have to see how Fitbit’s progress goes with its current initiatives.
Trading Fitbit Stock
Fitbit stock has been on a massive rally, but it needs to rest in my mind. Sporting an RSI (blue circle) north of 80 doesn’t mean it will pullback. But it makes adding to the current gains that much harder.
This month alone, Fitbit stock has pushed through the $6 and $7 level, the latter of which is quite significant. From a bulls’ perspective, it would be great to see FIT stock consolidate between $7 and $7.50. That will give it time to work off its overbought condition and recharge for another leg higher.
The key, though, is $7. Should it fail, there’s no definitive level of support below. If that happens, we’ll need to see how it shakes out and if Fitbit stock can reclaim $7 again. But for now, let’s go one step at a time and first see if support holds and Fitbit stock can cool off.
With a short interest of almost 15% — although likely lower now — FIT could have more upside if bulls can get a short-squeeze going again.