Fitbit – Not so “fit”

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Fitbit – Not so “fit”

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?

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