Today, baby product maker Owlet (NYSE:OWLT) has seen some serious selling. Indeed, OWLT stock has lost nearly a quarter of its value today after the U.S. Food and Drug Administration (FDA) released a warning letter regarding one of the company’s key products.
This warning letter was disclosed in a Form 8-K filed today. The FDA reportedly sent Owlet a letter advising the company that it would be classifying the company’s smart sock product as a medical device. This designation would require FDA approval, meaning in the meantime, Owlet may not sell or distribute this product until the company gains FDA premarket clearance or approval.
Given the potential impact on Owlet’s top and bottom lines, today’s selling appears to be in line with the disruption investors expect to see in the near term.
Let’s dive into some of the key takeaways from this FDA letter.
OWLT Stock Plummets on FDA Notice
Today’s announcement that Owlet has been asked to cease commercial distribution of its smart sock is a big hit. Indeed, this is a product that investors have looked to for growth, with the company recently announcing 1 million babies being monitored with the smart sock. Accordingly, as such a large component to Owlet’s business model, investors have reason for concern today.
Among the chief concerns for investors is the risk that Owlet may not satisfy the FDA with their submissions. While Owlet has confirmed it’s working with the FDA to resolve these concerns, the company gives no guarantees the issue will be resolved. Indeed, without any indication to the contrary, investors appear to be bracing for a future without the smart sock.
Indeed, these concerns may be overblown. Owlet has immense incentive to resolve these issues in a time-sensitive manner. However, the potential downtime this may cause, as well as a shift in consumer confidence with Owlet’s other products, is a big blow for investors bullish on this brand.
Whether this dip turns out to be a buying opportunity remains to be seen. However, it’s likely OWLT stock will be a volatile one from here. Accordingly, investors may want to re-think how this stock fits in their portfolio right now.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.