Option Trade 
Fitbit Inc (NYSE:FIT) Calls 
Thursday, September 10, 2015

**OPTION TRADE: Buy the FIT Nov 2015 40.000 call (FIT151120C00040000) at approximately $2.25. Place a pre-determined sell at $4.50. Note: No protective stop losses added as yet -- but if you wish to do so make it $0.90.

by Ian Harvey

September 10, 2015


Fitbit Inc (NYSE: FIT), a provider of health and fitness products, has seen some major movement this week. To begin the shortened week Morgan Stanley analyst Kathryn Huberty upgraded the stock from Equal weight to Overweight and increased her price target from $43 to $58. Huberty weighed in on the wearable device company last month, noting that shares came “sprinting out of the gate” after the company’s IPO in June. At the time, she noted her bearish price target of $26 and per bullish price target of $61 in the near-term. Huberty has reiterated three neutral ratings on Fitbit since July, but it seems the analyst has now turned to the bull side.

And then yesterday, investment analysts at FBN Securities began coverage on shares of Fitbit setting an “outperform” rating on the stock and a $50 price target. FBN Securities analyst, Shebly Seyrafi noted that shares are currently at a prime buying opportunity due to recent weakness. He noted…..

“As the company becomes more mature, FQ3 will be the seasonally down quarter for the company as CQ1 has strength due to New Year’s resolutions, CQ2 has strength due to Mother’s Day and Father’s Day, and CQ4 has strength due to the holidays while CQ3 basically has no such similar drivers.” Seyrafi still expects year-over-year growth in the coming quarter to “more than double,” making the recent pullback an ideal buying opportunity for long term investors.

Technical Details

Fitbit has a 12 month low of $29.50 and a 12 month high of $51.90. The firm has a market cap of $7.34 billion and a PE ratio of 45.58. The company’s 50 day moving average is $41.62 and its 200-day moving average is $41.09.


Previous Earnings

Fitbit last released its earnings results on Wednesday, August 5th. The company reported $0.21 earnings per share for the quarter, beating the consensus estimate of $0.08 by $0.13. The firm earned $400 million during the quarter, compared to the consensus estimate of $319.02 million. Fitbit’s revenue was up 252.5% compared to the same quarter last year. Equities research analysts predict that Fitbit will post $0.76 EPS for the current year.

Future Earnings

Fitbit’s projected revenue and earnings is expected to rise above $3 billion and $1.50 per share, respectively; within the next two years. These estimates reflect a compounded annual growth rate of more than 40%. The major growth drivers for Fitbit shall be its slew of recent acquisitions as well as the introduction of new products which shall expand its market share in and outside the United States. There is huge potential for Fitbit to monetize its app and dashboard traffic with the introduction of an advertisement-based model.

Positive Factors

The San Francisco-based device maker maintained 21 per cent of the wearables market in July, according to a Morgan Stanley survey, despite competition from Apple Inc.’s gadget, which was introduced in April. The number of Fitbit users who planned to buy Apple’s watch fell from May to July, according to the bank’s survey. Apple’s device is a smartwatch, offering capabilities such as e-mail and other apps that aren’t available for the so-called basic wearable gadget that Fitbit makes.

Fitbit executives have said they don’t believe that their business has been hurt by the Apple Watch because their products focus on consumers specifically concerned with health and fitness.

Bill Zerella, the device-maker’s chief financial officer, said last month that the company may triple spending on research and development this year and will reveal new products next year.

Fitbit, which dominates the market for bands that track health data, last month reported second-quarter revenue that more than tripled from a year earlier to $400.4 million.

Analysts Opinions

The company has also been the subject of a number of other research reports:-

• Piper Jaffray reaffirmed a “buy” rating and issued a $60.00 price target on shares of Fitbit in a research note on Monday, August 24th.

• Vetr raised Fitbit from a “buy” rating to a “strong-buy” rating and set a $49.46 target price for the company in a research note on Wednesday, August 19th.

• SunTrust cut Fitbit to a “buy” rating and boosted their price target for the stock from $50.00 to $52.00 in a report on Thursday, August 6th.

• Finally, Deutsche Bank reiterated a “buy” rating and issued a $52.00 target price (up from $50.00) on shares of Fitbit in a report on Thursday, August 6th.

Out of the 12 analysts polled in the last 3 months, 8 are bullish on the wearables company and 4 are neutral. The average 12-month price target on the stock is $56.56, marking a 77% potential upside from where shares last closed.

Harvey’s Options Volatility Indicator


The recent pullback in the company's stock price has created a lucrative entry point for this option trade.

The plunge in Fitbit stock experienced during our last encounter, was on account of investors' concerns that the company may lose a major chunk of its market share to Apple Inc. (NASDAQ:AAPL).

However, it now seems that this was a myth and Fitbit is still the most dominant force in the digital fitness industry, with a significant addressable market and huge demographic appeal. Fitbit is now in a position to capitalize on its established foothold in the industry. Fitbit enjoys a strong cash position which allows the company to spend on marketing as well as research and development; to differentiate its product from competitors' offerings.

For the near term, analysts believe that Fitbit will do well -- they expect increased investment in marketing and advertising to propel growth further for the company, in November and December.

The 'enhanced media spend' is expected to help maintain an upward momentum in Fitbit stock, over the next few months.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the FIT Nov 2015 40.000 call (FIT151120C00040000) at approximately $2.25. Place a pre-determined sell at $4.50. Note: No protective stop losses added as yet -- but if you wish to do so make it $0.90.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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