Why Fitbit Stock Gained 23% in September

Shares soared on reports of a company sale in the works, but investors should be careful about jumping into the stock now.

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Image source: Getty Images

What happened

Investors in Fitbit (NYSE: FIT) beat the market last month as the stock jumped 23% compared with a 2% increase in the S&P 500, according to S&P Global Market Intelligence. That rally wasn’t strong enough to return the tech specialist to positive territory for the year, though, as shares are down over 20% so far in 2019.

So what

Fitbit’s rally had nothing to do with improving operating trends. In fact, the wearable device maker’s last earnings report, in late July, showed only modest sales growth and net losses as competition continued pouring into the industry. Yet shares spiked on reports that the company is considering a sale to take itself private.

Now what

There are some good reasons a private equity company or larger tech stock might want to buy Fitbit and acquire its large and loyal customer base. But that’s a weak factor to rely on as your sole investing thesis. Investors are better off watching for signs of fundamental operating improvements that would show up in accelerating sales growth or rising profit margin. For now, though, both of these trends point to continued market share losses heading into the crucial holiday shopping period.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Fitbit. The Motley Fool has a disclosure policy.

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