Health fitness products firm Fitbit Inc (FIT) will step back into the earnings limelight on Monday, and FIT stock has its work cut out for it.
Fitbit stock has been in a near free fall for the past several months, with FIT plunging more than 60% since August. With high volatility and the potential for a sizable move post earnings, FIT traders have plenty of options.
Honestly, Fitbit has always felt like more of a product that Apple Inc. (AAPL) should have rolled out on its own, and not a standalone business. In fact, competition with Apple is one of the main challenges facing Fitbit’s management on Monday.
Wall Street is expecting a profit of 25 cents per share on revenue of $647.55 million, though management’s answer for competition and guidance will likely steal the show.
Despite very real growth concerns, some analysts have set their sights considerably higher than the consensus. According to EarningsWhisper.com, the fourth-quarter whisper number for Fitbit comes in at 34 cents per share — nine cents better than the Street.
Historically, this whisper is within the realm of possibilities, as Fitbit has more than doubled the consensus target in the only two quarters since the company went public.
Taking a closer look at the brokerage community reveals a considerably bullish sentiment backdrop for Fitbit stock. According to data from Zacks, FIT has attracted 16 buy ratings and four holds, with nary a sell rating to be found. Furthermore, the 12-month consensus price target of $35 per share represents a massive premium of more than 120% to Fitbit stock’s current trading range.
Options traders are also extremely bullish on Fitbit stock. Currently, the February/March put/call open interest ratio for FIT arrives at 0.32, as calls more than triple puts among options set to expire within the next two months. This ratio plunges to 0.24 for the weekly February 26 series, with calls more than four times as popular as puts for options most affected by Fitbit’s earnings report.
Click to Enlarge Overall, weekly February 26 series implieds are pricing in a potential post-earnings move of more than 18% for Fitbit stock. This places the upper bound at about $19, while the lower bound lies near $13.
A post-earnings plunge could put FIT at fresh all-time lows, while a rally would still leave the shares well shy of overhead resistance at $20.
2 Trades for Fitbit Stock
Put Spread: Heavy optimism for an underperforming stock is a major warning flag from a contrarian investing perspective. The problem is that Fitbit has to prove it can remain competitive with Apple and other already established third-party smartphone providers .. and betting against Apple can be bad for your portfolio. As such, I’m leaning toward a bear put spread on Fitbit stock ahead of Monday’s earnings report.
Traders looking for a contrarian play might want to consider a March $14/$15 bear put spread. At last check, this spread was offered at 40 cents, or $40 per pair of contracts. Breakeven lies at $14.60, while a maximum profit of 60 cents, or $60 per pair of contracts, is possible if Fitbit stock closes at or below $14 when March options expire.
Call Spread: On the other hand, FIT is trading near oversold levels and the company remains a hot commodity in the fitness and smartphone market. Furthermore, there is always the possibility of a potential takeover or other dealmaking down the road.
For those wishing to side with the wealth of Fitbit stock bulls, a March $17/$18 bull call spread has plenty of potential. At last check, this spread was offered at 35 cents, or $35 per pair of contracts. Breakeven lies at $17.35, while a maximum profit of 65 cents, or $65 per pair of contracts, is possible if Fitbit stock closes at or above $18 when March options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
