Is Fitbit a Strong Play?

Written by GSCR Staff   
Thursday, 05 November 2015 07:48

One of the reasons to invest or trade small cap stocks in a satellite portfolio is to avoid the hype. Large cap or mega cap stocks draw a lot of attention and noise and it is sometime difficult to filter through all the gobbledygook. Well, today we are going to try and tackle a high profile stock and offer our thoughts.

Fitbit, Inc. (NYSE – FIT - $37.52) has been all the rage since its IPO in June.

The chart below illustrates the stock’s performance since then.

FIT 6 month Chart

(Source: www.google.com/finance)

MM.11.05.15.FIT-6mo

From afar, Fitbit epitomizes all the best of Silicon Valley. The Company has been around since 2007 and is solid play on high tech and fitness. The Company makes both wrist bands and clippable devices that monitor a user’s fitness activity by tracking the calories burned or distance covered. The products include Fitbit Zip, a wireless tracker that allows users to track daily activity statistics, such as steps, distance, calories burned, and active minutes; Fitbit One, a clippable wireless tracker, which tracks stairs climbed and sleep; Fitbit Flex, a wristband-style tracker that tracks steps, distance, calories burned, active minutes, and sleep; and Fitbit Charge, a wireless activity and sleep wristband, which tracks steps, distance, calories burned, active minutes, floors climbed, and sleep. The Company also provides Fitbit Charge HR, a wireless heart rate and activity wristband; Fitbit Surge, a fitness watch that consists of GPS watch, heart rate tracker, activity tracker, and smartwatch; and Fitbit Aria, a Wi-Fi connected scale that tracks weight, body fat percentage, and body mass index. In addition, it sells various accessories, such as bands and clips, charging cables, and Fitbit apparel.

In Monday’s Guide we mentioned an up and coming way for investors and companies to hook up, crowd funding. Well, now is the time to think about crowded gyms in early January as people start their New Year’s resolutions after packing on the holiday pounds and the seasonal play on this phenomenon. The holiday retail season is one strong reason to love FIT. Another healthy balance sheet indicator is zero debt as of the end of 3Q15.

As far as the longer term prospects for Fitbit, margins indicate solid performance. Gross margin of 48% is right in line with the industry average of 47%. The solid efficiency metric is the operating margin of 20% versus 5% industry average. Finally, the growth story should not be ignored. The Company is expected to hit a top line revenue figure of $1.75 billion this year and improve that number by 34% next year to $2.33 billion.

FIT dropped nearly $5 earlier this week on news of a secondary offering despite clobbering EPS and revenue estimates when the Company reported its 3Q financial results. We think this dip combined with reasons mentioned above presents a buying opportunity. Look for FIT to climb to $45 by the end of 1Q 2015.

Have a great day!

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