Fitbit (FIT) Stock Spikes Over 40% on News of Google Parent Acquisition; Buy the Rumor

Kiril Nikolaev @kirilnikk123
October 30, 2019 13:00 UTC
  • Fitness company Fitbit has grabbed the limelight recently due to news of possible acquisition by Alphabet.
  • It has been two days since the news broke but until now there’s no confirmation, suggesting that other companies are also vying for the smartwatch-maker.
  • The rumors will likely keep shares soaring as traders speculate on the acquisition price.

Over the last couple of days, rumors of Fitbit (NYSE:FIT) being acquired by Google’s parent company, Alphabet (NASDAQ:GOOGL), has been circling the internet. According to Reuters, Alphabet has already made an offer to purchase the U.S.-based smartwatch-maker as it tries to enter the crowded wearables space.

After the news of a possible acquisition broke out, shares of the fitness tracker company exploded. It opened Monday at $4.29 and climbed as high as $6.30 on Tuesday before the stock pulled back due to overheated conditions.

Are we seeing a pump and dump scheme or is there something going on suggesting that a move higher is warranted? We looked at the company’s fundamentals and discovered that it is attractive enough to lure suitors other than Alphabet.

Fitbit Touts Strong Fundamentals

Over the last few years, many investors have focused on Facebook, Amazon, Apple, Netflix, and Google (FAANG) stocks. Consequently, they overlooked tech companies with strong fundamentals just like Fitbit. The fitness tracker company has a stellar balance sheet.

A pseudonymous analyst named CÆTUS has been following the company for over a year. He looked at Fitbit’s balance sheet and discovered that the stock offered a “stupendous risk-reward” ratio.

Fitbit has a solid balance sheet. | Source: Twitter

In addition to that, the makers of fitness wearables generated revenues of $1.5 billion in 2018. To put that in perspective, Fitbit is currently valued at $1.46 billion at $6.05 per share. Alphabet will be getting a huge bargain if they are able to buy the smartwatch company at its current valuation.

However, it appears that FitBit knows its intrinsic worth. We suspect that this is the reason why the acquisition, if true, has not yet pushed through. It might be possible that the company is sifting through offers.

Other Big Name Brands May Acquire Fitbit

It is possible that Fitbit may be entertaining offers from other companies. Will Meade, former Goldman Sachs analyst, watched the call buying activity on Fitbit Tuesday and arrived at two conclusions. First, it is possible that Alphabet is raising its bid. Second, he supposes that another company may have entered the conversation.

Will Meade offers two possible scenarios to explain the heavy call buying on FIT. | Source: Twitter

CÆTUS also sees these two possibilities. The analyst said that it would be negligent for companies such as Microsoft, Swatch, Samsung, Fossil, and Amazon to let Alphabet snatch Fitbit without making an offer.

Other companies are on the losing end should Alphabet acquire Fitbit with no resistance. | Source: Twitter

The fact that the Alphabet acquisition is still not closed leaves the door open for these companies. This is great news for traders and investors. If other companies are in the mix, chances are the value of Fitbit rises. According to CÆTUS, shares of the smartwatch maker could be priced between $10.69 and $13.96.

The analyst believes that Fitbit is significantly undervalued. | Source: Twitter

As long as the acquisition talks are still open, Fitbit is likely to continue soaring in value. The rally might end once the acquisition is confirmed. Thus, for some speculative traders, it might make sense to buy the rumor and sell the news.

Disclaimer: The above should not be considered trading advice from CCN. The writer does not own Fitbit stock.

This article was edited by Sam Bourgi.

Last modified: October 30, 2019 12:55 UTC

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Kiril Nikolaev @kirilnikk123

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has a bachelor's degree with a specialty in finance and lives in Canada. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. He owns Bitcoin, Ethereum, and other cryptocurrencies. He holds investment positions in the coins but does not engage in short-term or day-trading. Follow the author on Twitter @kirilnikk kirilnikk123@gmail.com