Trade Alert: An options trade in Fitbit
Let’s talk about the small options trade I’m making. I’m going to buy some longer-dated FitBit $FIT call options. I’m going to take a small amount of capital and buy some Fitbit call options that expire out in June with strike prices around $17-18.
What’s really impressive about those $FIT Alta and Blaze numbers is that they are selling that well in the face of the Apple Watch and the fitness bands now being sold by $MSFT, and about a thousand smaller companies including the ones you see being pawned on TV by Brett Favre for 1/4 of the price of the cheapest Fitbit.
The Fitbit Alta and Fitbit Blaze are not only selling extremely well they are also receiving very positive initial reviews from customers. According to the recent press release from $FIT, “Fitbit Blaze has earned more than 1,200 customer reviews on Amazon in the last month, with 83% giving Fitbit Blaze a 4- or 5-star rating,” and “Fitbit Alta is one of the top selling devices in the fitness tracker and pedometer categories on Amazon.com. Nearly 78% of customer reviews on Amazon give Alta a 4- or 5-star rating.
According to information provided by executives at $FIT in the company’s presentation at the Bank of America Merrill Lynch Consumer and Retail Tech Conference in March, 2016, Fitbit’s market share in the fitness tracker market, in terms of dollars, is “north of 85% and it has been growing over the last few years.” Garmin is $FIT‘s closest competitor in the fitness tracker market and its market share is somewhere around 7-8% (according to $FIT CFO). Corporations are adopting the Fitbit platform as a de facto standard way of embracing fitness and trying to lower health care costs, as evidenced by Target last year (Target ordered 335,000 fitness trackers for its employees from Fitbit in Q3 2015). But we need to see a few more announcements like that to really believe that thesis is going to help drive long-term business for Fitbit.
Net/net I expect that Fitbit’s got a huge quarterly report coming up and as long as the guidance for next quarter reflects some of this “much-better-than-expected” sales trends that we seem to be seeing this quarter, this stock could really pop.
Analysts currently expect that Fitbit is going to grow sales 30% this year, earning $1.12 per share with sales next year expected to grow another 20% and the company earn $1.40 per share. Those aren’t terribly expensive metrics as the stock is trading at $15 or so here. If Fitbit earnings more than a dollar per share this year, I’d expect that the stock will be well into the $20s by the end of year.
Obviously, there are risks that the company’s profitability suffers from competitive pressures, from inventory management, from growth pains and other issues. But I think the risk/reward is favorable for betting a little bit of capital on Fitbit getting back on track both fundamentally and with the stock.
I’m going to take a small amount of capital and buy some Fitbit call options that expire out in August with strike prices around $17-18, bidding a nickel or so below the asking price. If you don’t have a margin account or you don’t want to risk money on options, you might consider nibbling a 1/4 or so position in Fitbit FIT common stock.
Like I say, let’s continue to take the long view on our trading and investing. Maybe there is something to all this being flexible, being patient and investing in the most revolutionary companies on the planet.
