Forget the Bears; Fitbit Stock Due for Rebound
Fitbit, Inc. (NYSE:FIT) has taken quite a beating as of late, with the FIT stock price dropping by 30% since its high of $40.80 on November 2, 2015.
While the Fitbit stock price appears to have stabilized since its 12% slide last Friday, causing investors and analysts alike to run for the hills, this may be the ideal time to take a second look at FIT stock.
A solid contrarian position like this may seem counterintuitive, but going against the tide always carries significant risks. However, where there is risk, there are also huge potential gains to be made.
The Fitbit stock price forecast may be bearish for the moment, but that doesn’t mean that Fitbit cannot rally. In fact, FIT stock could be about to rebound quicker than you might think.
I’m Sticking to My Guns for Fitbit Stock
So it’s at this point that you’re asking just exactly how Fitbit got into this mess in the first place. Wasn’t the company doing so well only a few months ago, seemingly poised to take the wearable fitness band market by storm?
The good news is that this prediction is still likely correct, but it may take longer to achieve than expected. Let me explain.
Fitbit is actually a highly profitable and well-run company, a fact that is somehow absent when looking at FIT stock price movements. How could that be?
Chart courtesy of www.StockCharts.com
The primary reason for which Fitbit stock was pounded in Friday trading is the announcement of a secondary offering, a fact that investors were actually fully aware of a week prior. (Source: “Fitbit Drops to Low After Cutting Size of Secondary Offering,” Bloomberg, November 13, 2015.) The company had just released its third-quarter earnings results, which were incidentally phenomenal, and had reported an upcoming follow-on offering.
Fitbit reported earnings per share of $0.24 for the third quarter of 2015, which was a welcome upset for those predicting a dismal $0.10 per share. But it doesn’t stop there; revenue levels were also off the charts at a cool $409 million. This represents a fantastic 168% year-on-year revenue growth rate, but more importantly, it beat analysts’ expectations of $350 million by a comfortable margin.
And if you thought this was simply a lucky fluke, then think again. This is the second earnings report in a row in which the Fitbit stock price has outpaced analysts’ forecasts. Do take into consideration, however, that Fitbit has only been a public company since June.
Is This Really So Bad for the FIT Stock Price Forecast?
But let’s turn back to the reason for the drop in FIT stock, which, if you recall, was the announcement of a secondary offering. The specifics are as follows: Fitbit will be offering 17 million shares in the form of 14 million from insiders and three million from Fitbit itself. Shares will be offered at $29.00 each. (Source: “Why NOW Is the Time to Buy Fitbit (FIT) Stock,” Investor Place, November 16, 2015.) This was a revision downward from the planned 21 million shares, of which seven million were to come from the company.
Now, it’s understandable that investors were more than disappointed over this development, particularly the scaling-down of the number of shares to be offered. This is because less money would actually be flowing into Fitbit off of the sale of FIT stock, which means less funding for activities, such as research and development.
When you consider the surging competition from competitors such as Apple, Garmin, and Microsoft, which have all recently dove into the wearable fitness device market, Fitbit will need every penny to remain competitive. (Source: “Fitbit beats back competition with wellness program,” Forbes, October 20, 2015.)
The Bottom Line on Fitbit Stock
When you consider it from all angles, FIT stock looks mighty tempting for a contrarian play. It’s a large, financially sound, well-managed company that produces market-leading products in a niche it helped pioneer. Sure, the follow-on offering was disappointing for investors, but the latest dip in Fitbit’s stock price may provide the perfect setting for a quick investment before shares shoot up in value.
The fourth quarter might actually be Fitbit’s strongest to date, as the fitness craze continues to take the U.S. by storm. When you take into account that we’re standing at the beginning of the holiday shopping season, this wouldn’t be a bad time to take a look at the Fitbit stock price as an undervalued company.