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Earnings Preview: Fitbit Stock Probably Won’t Rebound

James Brumley

Credit has to be given where it’s due. Fitbit (NYSE:FIT) had a novel idea and singlehandedly mainstreamed the fitness tracker category. Smartphone giant Apple (NASDAQ:AAPL) has since countered with its smartwatch, and other players have crept into the space. Fitbit, however, was the original developer of fitness trackers, and FIT stock is still the category’s only pure play.

Being the only pure option in a category, however, doesn’t make FIT stock a worthy investment.

It’s not a notion most Fitbit fans and owners of FIT stock want to hear. But many of the remaining owners of the stock who like Fitbit’s business concept may not be considering the viability of its business.

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Similar disappointments like GoPro (NASDAQ:GPRO), Blue Apron (NYSE:APRN) and Groupon (NASDAQ:GRPN) come to mind. All of them drew a relatively respectable crowd of consumers, but none of them has generated a respectable profit. These companies face one of two problems. Some of them don’t generate enough sales to justify the amount of money they have to spend. In other cases, their markets simply aren’t large enough or they are facing too much competition.

A look at these three charts may convince any optimists who still insist on holding onto FIT stock that the cause is futile.

Fitbit’s Sales and Profits Are Still Falling

The good news is that Fitbit’s losses per share have been dropping, and that trend is expected to continue  through the end of 2019.

The bad news is that this is a misleading projection that only applies to the company’s operating results. On a GAAP/reported basis, the company’s net income is expected to remain in the red through 2020. Moreover, its sales have been and should continue to wane.

Fitbit is doing what it can to rekindle growth. The Fitbit Ace, a fitness tracker for kids, is a creative idea. But children probably won’t be any more interested in tracking their physical activity than adults, and far too many adults lose interest in tracking themselves sooner rather than later.


Analysts Are Still Lukewarm About FIT Stock

Most analysts love stocks with stories, even if their fundamentals are lousy. That’s because there’s good money to be made as long as investors are willing to buy into a story without looking under the hood or crunching the plausible numbers. The aforementioned GoPro was one such market darling. There was a point at which the analyst community absolutely loved it, even though they may have tacitly known that action cameras were never going to be a mass-market product.

Interestingly, though, professional stock pickers were only huge fans of FIT stock back in 2016 when the concept of fitness trackers was still red hot and Fitbit was the name to beat. Heading into that year’s holiday season, the pros saw the writing on the wall, as they downgraded FIT stock and never really changed their minds. If anything, analysts have become more bearish despite the “cheapness” of FIT stock now.

Another interesting point about Fitbit is that in June, when FIT stock rallied, analysts didn’t flinch.

Quite often, you’ll see analysts collectively raise their price targets at the beginning of a rally in an effort to get out in front of a trade-worthy move. This time, though, that didn’t happen. For the second time in less than a year, the pros didn’t take the bait, and the new buyers of FIT stock paid the price.


FIT Stock Chart

Finally, the tumble FIT stock has suffered since peaking above $50 in late 2015 speaks volumes, but that’s not even the most troubling aspect of the chart right now. Most alarming is the fact that the recent weakness has pulled FIT stock back under its pivotal 200-day moving average line, which is depicted in blue.

The 200-day moving average is quite important. As highlighted on the chart, the 200-day line has proven to be the support and resistance of FIT stock at different times since the latter half of last year. The bears didn’t flippantly cause FIT stock to drop below the line now, and getting back above it from here could prove to be difficult.

The Bottom Line on FIT Stock

They say a picture is worth a thousand words. Thoughts and feelings can be deceiving, but pictures of hard data don’t lie. Fitbit has been and remains in trouble, with few fans on Wall Street or Main Street. There’s a reason for that.

Is the trouble insurmountable? No. Nothing has to be permanent. However, since there’s no legitimate reason to think that things are going to turn around for the fitness tracker company, FIT stock is tough to get behind here. The images underscore that idea.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.

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