Shares of Fitbit (NASDAQ:FIT) are off to a red-hot start in the New Year, with Fitbit stock up more than 35% year-to-date, and we aren’t even halfway through February. The big rally can be attributed to a growing feeling on Wall Street that Fitbit’s new Versa smartwatch led the wearables company to a strong holiday period. As such, investors have been bidding up Fitbit stock in anticipation of strong fourth-quarter numbers.

But, Fitbit stock has come too far, too fast, and is due for a pullback soon.

To be sure, Q4 numbers should be really good. There’s an increasing amount of data which suggests that Fitbit did have a strong holiday period, led by strong smartwatch sales. That further supports the long-term bull thesis that the worst is over for this company.

But, optimism regarding that long-term bull thesis is already fully priced into Fitbit stock. At nearly $7, near- to medium-term upside looks fundamentally limited. But the risk for downside is quite large, both from a technical and fundamental perspective.

As such, Fitbit stock is best avoided here. The next big move in the stock will likely be lower.

Strong Holiday Numbers In Store

The 30%+ year-to-date rally in Fitbit stock can be attributed to bullish sentiment regarding Fitbit’s holiday period.

That bullish sentiment is warranted. According to Google Trends, it does appear that both domestic and global search interest related to the Fitbit brand bounced back this holiday season, after several years of fading interest. Also, it appears this strength was driven by interest in Fitbit’s newest smartwatch, Versa. Web-traffic trends are likewise favorable. Also, on Walmart (NYSE:WMT), Target (NYSE:TGT), Amazon (NASDAQ:AMZN), and Best Buy’s (NASDAQ:BBY) online bestselling smartwatches lists, Fitbit holds its own against industry heavyweights like Apple (NASDAQ:AAPL), Fossil (NASDAQ:FOSL), and Samsung.

In other words, it does seem like Fitbit had a really good holiday period, led by robust smartwatch strength.

That’s a big deal. The whole Fitbit turnaround is predicated on this company pivoting from dying basic activity tracker company, to growing smartwatch company. This turnaround appears to have taken hold in late 2018. As such, the worst does appear to be in the rearview mirror. From here forward, revenue growth should return to positive territory, gross margins should stabilize, and the opex rate should fall. All together, profitability looks likely within the next several years.

Overall, it looks like Fitbit had a really strong holiday quarter, and that gives firepower to the bull thesis that things will only get better from here. Theoretically, that thesis should drive Fitbit stock higher. But, it already has, and further upside looks limited, even if the bull thesis plays out as planned.

Good News Is Priced In

As always, things come back to valuation. With respect to Fitbit stock, the valuation simply does not make sense with the stock price around closing in on $7.

Long-term fundamentals don’t support Fitbit stock at those levels just yet. In a best-case scenario, revenues bottom at $1.5 billion this year, and proceed to grow by ~10% per year over the subsequent five years due to smartwatch growth and data partnerships. Also in a best case scenario, gross margins stabilize around 40%, and operating expenses stay around $800 million even amid increasing revenues.

All together, that leads me to believe that a best-case outcome for Fitbit is $0.50 in EPS by fiscal 2023. Based on competitor Garmin’s (NYSE:GRMN) average forward P/E multiple of 18, that equates that a fiscal 2022 price target for Fitbit stock of $9. Discounted back by 10% per year, that equates to a fiscal 2019 price target of just under $7.

That’s where Fitbit stock trades today. As such, fundamentals imply zero upside into the end of 2019.

Also, the technicals look stretched here. Fitbit stock is up 45% since Christmas Eve 2018. That huge rally has pushed the stock’s Relative Strength Index into overbought territory. It has also pushed the stock nearly 20% above its 50-day moving average. Meanwhile, if you look at the stock chart over the past year, this rally looks more like a cyclical upturn before a cyclical downturn, than a breakout in the stock.

Bottom Line on FIT Stock

The underlying narrative and fundamentals supporting Fitbit stock are improving thanks to a successful smartwatch pivot. But, those improvements are more than fully priced in at current levels and with the stock up more than 30% year-to-date. Consequently, the next big move in Fitbit stock will likely be lower.

As of this writing, Luke Lango was long TGT, AMZN, BBY, AAPL, and FOSL.