How to Buy Fitbit (FIT) Stock

Startups and new companies often provide excellent opportunities for investors and traders, although being selective and timing your purchases can often make the difference between a profit, a break-even or a loss. Fitbit (NYSE: FIT) stock has only traded since 2015, but it has already moved down more than 1,000% since having its initial public offering (IPO). Think it's for you? Here's how to buy Fitbit stock.

Overview: Fitbit (FIT) and Stock History

Founded in 2007 in San Francisco, California, Fitbit Inc. is a manufacturer of wearable fitness tracking devices. These devices let people monitor heart rate, number of walked steps, sleep quality and other personal fitness and health metrics.

Fitbit’s product line consists of Fitbit One, Fitbit Zip, Fitbit Surge, Fitbit Charge, Fitbit Charge HR, Fitbit Versa, Fitbit Flex and Aria, in addition to accessories such as bands, clips and charging cables. The company also combines its products with health plan providers in mutually beneficial partnerships.

Fitbit announced its IPO in May of 2015, and on June 18, 2015, the company raised $358 million by selling shares at $20 apiece. When the stock opened for its first day of trading on the New York Stock Exchange, FIT opened at $30.40, up +52% from its IPO price. Since its IPO, FIT stock rose by more than +150% to $51.64 in August of 2015, only to drop precipitously down to $4.33 by 2018. The stock currently trades slightly above its all-time low of $4.33 per share.  

Fitbit stock price chart since its IPO in July of 2015. Source: Tradingview.

Future Outlook for Fitbit

Since Fitbit stock is trading very close to the stock’s all-time low of $4.33 per share, it may present a buying opportunity for long-term investors. The stock’s fair price with respect to future earnings should be over $6 per share, according to the analyst consensus, which would make the stock undervalued at current levels.

Nevertheless, stocks don’t just become undervalued without a reason. In this case, the reasons seem to include increased competition and the cost of transitioning the company to a health care services provider. Basically, Fitbit is currently working to change its fundamental business model to one that involves recurring revenue.

In Fitbit’s case, this involves a transition from just making devices to increasing their network of partnerships with wellness providers. Through the Fitbit Health Solutions (FHS) program, the company integrates with national and regional health plan providers to help lower health care costs by using their devices with the goal of improving the health of plan members.

Fitbit’s presentation of devices sold since the first quarter of 2018. Source: Fitbit

The company has active partnerships with some top health insurance providers and other companies including Cigna, Humana, Virgin Pulse, Castlight, Anthem, Limeade, Vitality, Solera and One Drop. The FHS program is not limited to health care providers either, since many companies and institutions such as universities and public service providers, participate in the FHS program. Some of Fitbit’s corporate and institutional clients include Emory University, Cisco Australia and New Zealand, South Carolina State House, Indiana University and the Regional Transit Authority (RTA) Dayton.

Fitbit’s latest earnings report was released on May 1 and showed a first-quarter non-Generally Accepted Accounting Practice (GAAP) earnings per share (EPS) of -$0.15 on revenue of $271.9 million. Both numbers beat analyst estimates with earnings expected at -$0.22 per share and revenue expected at $259.2 million.

Despite the company’s positive performance for the quarter, FIT stock sold off, which could have been due to a notable decline in gross margins from 47.1% to 34.2% year on year. Fitbit’s stock continued selling off in May, although it may now be the subject of accumulation at these rather undervalued levels since volume declined significantly after the earnings announcement.

Technically, if the stock can hold above its $4.33 historic low, then it’s likely to trade higher, and if that rally continues beyond the $6.56-$6.83 per share resistance region, then higher levels should be seen. On the other hand, if the $4.33 support level is breached, then a further decline might ensue, with no support level evident for the next move down since the stock will then be in uncharted territory.

Pros of Buying Fitbit Stock

• FIT Stock may be undervalued: According to some stock analysts, with present and forward earnings improving at the current rate, FIT stock should currently have a value of $6 per share. Therefore, the selloff in the stock since the first quarter earnings release may be overextended. Also, Fitbit has beaten analyst estimates on quarterly earnings for the last two years with the exception of one quarter.
• Growing health care platform: Fitbit’s transition to becoming a health care services provider, in addition to a fitness tracking device maker, is a process currently underway and has already shown promising results. It’s probably only a matter of time before the company’s stock price begins reflecting this key business strategy change.   
• Higher smartwatch sales: Fitbit has been concentrating its efforts on improving smartwatch sales and has had success in doing so. As noted in the graphic above, smartwatches sold have increased by +117% year on year.

Cons of Buying Fitbit Stock

• U.S. economy/stock market weakness: A significant downturn in the U.S. economy and the stock market is a general risk that anyone investing or trading in the stock market should be aware of. Fitbit stock is no exception, although the company has transitioned to becoming a health care services provider, which has a more defensive position in the stock market. Still, if demand for their devices declines notably in a weaker economy, Fitbit stock could sell off further.
• Growing competition: While Apple dominates the smartwatch market, some analysts aren’t concerned so much about Fitbit losing market share to Apple. It seems more concerned that the health and fitness functionalities between Fitbit’s Charge 3 fitness tracker and its Versa smartwatch are not sufficiently differentiated. This could possibly lead to a decline in the demand for both products.  
• Transition risk: During the transition phase, the stock may still be vulnerable to cyclical influences before the company secures enough business on its health care platform. This could put additional pressure on its stock price in the event of an economic downturn.

How to Buy Fitbit Stock Using a Broker

Fitbit stock can be bought through any reputable broker with access to trade stocks listed on the New York Stock Exchange (NYSE). If your objective is to buy FIT as an investment and hold the stock in a trading account for long term capital appreciation, then you could open an account with a discount broker. With a discount broker, you would pay a small commission, but you wouldn’t get any extras that full-service brokers generally offer, such as a research department or an advanced trading platform.

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Is FIT Stock for You?

Startups and companies that just have just gone public have a completely different set of financial metrics than well-established company stocks. Many companies operate at a loss until their product or service begins to turn a profit after a certain period of time, which could take years for some companies.

Using technical analysis, the $4.33 low point suggests considerable nearby support, but if that level is breached, then the stock will enter uncharted territory and could sell off further. Still, even if the stock sells off at that point, it only has $4.33 left to lose, which is much less than when the stock traded closer to $50 per share in 2015.

Due to FIT stock’s considerable loss in value after its IPO, the stock could now be categorized as a penny stock, although it remains listed on the NYSE. Despite its low price, the company continues to report better-than-expected revenue and earnings just about every quarter, which makes a better case to be a buyer with a long-term investment perspective.  

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