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

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

Last Updated September 23, 2020 1:14 PM
Kiril Nikolaev
Last Updated September 23, 2020 1:14 PM
  • 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 Balance sheet
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.

FitBit buying
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
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.

FitBit valuation
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.com. The writer does not own Fitbit stock.