One of the most difficult trade: Betting on a Turnaround.
Lots of people thought Groupon is a turnaround trade but here's what has happened: Up, down, Up, down and nowhere
Turnaround trades can be very frustrating. Having said that Let's evaluate Fitbit as a Turnaround Case?
Fitbit is a $1.4 bn market cap company.
It's a major player in wearable health space. The bad news: the company is going through bad phase and has now posted four consecutive quarters of declining sales. The good news: the company is making great effort to turnaround things with new smartwatch Ionic which seems to have been received well by the market. And one thing nobody is looking at - Fitbit has $650+ million in cash, and equivalents on its balance sheet. It means market is valuing Fitbit only at $750 mn
Turning Point - Gap-up?
Fitbit stock made a big Gap-up move in September on back of its partnership announcement with Dexcom (continuous glucose monitoring machine maker). Dexcom machine will put that data on the Ionic smartwatch, allowing users to quickly view important health information
Here's how the chart looks:
Fitbit stock did make a big Gap-up move above 200 dma in September 2017 and has sustained above it since then. The current pullback to 200 dma which also has filled the gap - looks like a good opportunity. If the turnaround is for real - then this is a good place to add the stock with stop loss below 5.6
Nobody knows the future. If the turnaround is happening, then the current level might be a great place to add. Digital therapeutics is the future and you never know the kind of opportunity Fitbit is looking at. Now, if for any reason stock slips below 5.6, then we will consider that turnaround is not happening but till that point - keep HOPING 🙂
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers