Not so “fit” Fitbit
I know this blog is beginning to sound like a broken record but yet another example has emerged – Fitbit. As the P/E multiple approached 50 on Monday, I could not resist writing call options. Not only did the stock appear overpriced, for the reasons discussed below, but the implied volatility was over 90%.
The rationale behind my decision is familiar. A P/E of 50 requires significant growth in free cash flow – not revenues. Sustained growth in free cash flow requires meaningful, long-term barriers to entry. When it comes to wearable fitness tracking devices, it is hard to imagine a more competitive business. Not only is the space filled with big players like Apple, Samsung and Microsoft, but there are also a host of smaller companies like Pebble, Jawbone and Garmin jockeying for market share. Where the “moats” around Fitbit’s products in such a situation?
RV Capital Co-Investor Letter for the first half ended June 2022. Q2 2022 hedge fund letters, conferences and more Dear Co-Investors,