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.
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.
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.
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.
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.
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.
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.
Last modified: September 23, 2020 1:14 PM