Should You Be Bullish on FIT Stock?
Fitbit Inc (NYSE:FIT) is the only company that’s truly synonymous with wearable technology. Rivals are trying to horn in on the market, but they have found it tough to compete. Nonetheless, FIT stock remains undervalued.
Let’s take a closer look at why…
The NASDAQ was in a freefall for most of January until losses topped out at 14%. By contrast, Fitbit stock has slid nearly 50% since the start of 2016. The decline reflects a whole lot of pessimism on the company, yet I can’t understand why.
My best guess is that we’re seeing a “last in, first out” effect. Firms that just had an initial public offering (IPO) aren’t viewed as beacons of stability, so investors drop them first. It’s possible the concerns of a slowdown were weighing particularly heavy on Fitbit.
If that is the logic, then it is deeply flawed. After all, the company crushed its last earnings report. The bearish concerns seem more conceptual than they are concrete. And I’m not the only one who thinks so either. A billionaire CEO just loaded up on FIT stock.
Marc Benioff Gives FIT Stock a Bump
In the third quarter, Fitbit’s sales were up 168% from the year before, beating estimates by roughly $50 million. Analysts had also expected diluted earnings per share to shake out to $0.10; they were actually $0.19. (Source: “Fitbit Third Quarter Earnings Release,” Fitbit Inc press releases, November 2, 2015.)
However, the company put seven million shares up for grabs, which added to the size of the float. So just by adding volume, Fitbit decreased the price of an individual share. Investors weren’t too happy about that, even though Fitbit gave a good reason for doing so. (Source: “Fitbit Intends to File Registration Statement for Proposed Follow-On Offering,” Fitbit Inc press releases, November 2, 2015.)
The reason: “The proceeds of the primary portion of the proposed offering will be used to provide additional working capital for Fitbit and for other general corporate purposes, including research and development and sales and marketing activities, general and administrative matters, and capital expenditures.” (Source: Ibid.)
In plain English, that translates to, “Hey, we needed the cash in order to stay competitive.”
Personally, I like it when a company is prepared to defend their market share. That may not play well with the quarterly capitalists on Wall Street, but they’re wrong on almost everything anyways. The long game calls for strategic thinking.
And like I said, the smart money is bullish on FIT stock. Marc Benioff, the billionaire CEO of salesforce.com, just bought a five-percent stake in Fitbit. He’s said very nice things about the company in the past, but now his words are backed by dollars.
Benioff built Salesforce.com from the ground up, so he knows a little something about building value. He also went to war with Oracle Corporation, his previous employers. So he knows about corporate strategy as well. That’s why he understands Fitbit.
As lore would have it, Benioff was in love with Fitbit as far back as 2008. He used to distribute the wrist devices in meetings and tell people it was the next big thing. (Source: “Salesforce CEO Marc Benioff saw the wearable computer revolution coming years ago,” Business Insider, March 10, 2015.)
This guy saw wearable technology as a sector long before Wall Street, so I’m siding with him on FIT stock.