The Fitbit Headache – Making Whiskey Sour with Lemons
I have a headache. It’s been constant for about 10 months now. The bright side, I know exactly what’s causing it. The bad news is that I can’t pull the trigger to get rid of it. The source of my nagging condition is, none other, then Fitbit’s stock price.
I bought Fitbit stock back in January at $21.91 a share. I only bought it because I was bullish on the wearables market and Fitbit was the big guy on campus. At the time, they had no debt to speak of and owned the market share. They had also gotten over their IPO volatility period. I was super confident about this stock and had set myself a price target of $27. For the record, at the time, most of the major investment funds were targeting around $32-34.
Just so we’re clear: I still own stock in Fitbit. This is not an advertisement. This is a lesson about the marketplace.
The Fitbit Learning Curve
Fitbit has matched or beaten Wall Street earnings almost every single quarter. Their growth forecasts usually beat all expectations. The wearables market was really coming into full swing as well and the marketing campaign was well under way. I was sold on Fitbit, so I bought in on January 8th of this year. The following Monday, Jan 11th, a major investment house published a nasty note. They thought Fitbit was a joke and sold off all of their shares. The memo didn’t really note any specifics, but rather just a generalized “I don’t like it”. This caused a large selloff and my position dropped from $21.91 to $18.85 – a 14% drop for those of you playing at home.
I held strong. Fitbit had great fundamentals and bad news happens all the time. The overall tone of other news articles was still positive and strong – the stock would jump back. But it never did. I’m not as active in the market as I once was, so I check my stocks infrequently. I was flummoxed when I finally opened up my trading app and saw “$FIT: 14.68”. The market trounced me to the tune of 32% of my investment.
I became active in the market again. Fitbit was incredibly volatile at the time and had a very steady trading range, so I began to sell very short options on my position. The options all expired worthless. I began to earn back my investment $16 to $32 at a time.
The most recent Third Quarter earnings has Fitbit matching analysts’ expectations. And yet the CEO has come out again and slashed expectations – he’s done this twice now and each time Fitbit has surged past the original forecast. The market reacted and sold off. My shares now sit at $8.71 at the time of writing.
Why Fitbit is an Important Lesson
I’m strong on Fitbit still. They have great fundamentals: a profitable product, chic design, and they still own the lion’s portion of market share at 32%. Their debt levels have increased, but it’s in R&D. Fundamentally, they’re a sound company and the wearables sector, I believe, is hesitant to go away.
However, the market is fickle. Sometimes winners and losers don’t make sense and that’s just the way it goes. You can’t give up on your dreams and goals because they don’t always go your way. Just reanalyze and get back on the horse.
Your retirement account may bounce around and your career may turn unexpectedly, but you can’t give up. Set your sights on what you want and go for it! This is also why it’s so important to start investing young. The earlier you start to contribute, the longer you have to analyze mistakes and learn from them. If you’re unsure of where to start, check out my synopsis of various IRA accounts.
Becoming financially independent and free takes time. Be consistent, be methodical, and be purposeful. Even when the market turns against you seemingly at random.
We always need to analyze our faults. So what am I doing to analyze and reboot my strategy? Well, I’m selling my shares and buying back in. Yes, that does mean I realize a 50% loss in my investment. However, $8.71 is far too low for Fitbit. I’ll be able to buy more shares than I originally own and my new cost basis will be $12.74 AFTER trading costs. That means anything above that mark, I make money. Fitbit also just had a huge sell-off after the CEO slashed expectations, so I expect there to be some volatility from that, coupled with the volatility entering the election. I plan to sell short term options to capitalize on the uncertainty and make a few dollars. I’ve set a new price target at $15. Once it reaches it, I will sell Fitbit and be done with it for a long, long while.
After I sell, I will still like the stock. I still believe in its future; however, I don’t believe in the CEO. I look forward to being rid of the headache though. It’s gone on so long for me. Just because you analyze your faults, and rebound, doesn’t mean you have to like the journey. Sometimes it’s better to say “so long! And thanks for all the fish”. The market is fickle; it doesn’t always make sense. But it’s up to you to make your success.
Celts, do you think my strategy will pay off? Do you take time to reflect on your mistakes and success to find patterns? Let me know in the comments below! Be sure to check me out on my Cash Flow Celt Facebook page. And if you’re in Central Florida, looking to buy or sell real estate, check out my new Realtor Page!