In search of millennial melt-ups: Fitbit

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Earlier this week we highlighted GoPro (GPRO) as a “millennial melt-up” stock. Today’s name is Fitbit (FIT).

Before discussing FIT, here’s what we’re looking for:

  • Stocks under $10 that younger investors can afford.
  • Companies that younger investors would recognize. No obscure reinsurers, miners or polymer makers!

As TradeStation’s Scanner tool churned out results, we noticed a pattern. Many of the candidates were relatively new technology stocks that were hyped after their initial public offerings (IPOs), only to crash on weak results.

But the selloffs are fading into the rearview mirror and business may be improving. Now could be the time to look for “meltups,” a phenomenon when investors think all the bad news is priced into an asset and don’t want to miss out on a rebound.

That may have been the story with GPRO, and it could also be the case with FIT.

The maker of fitness products stunned the world on June 4 by announcing it had shipped more than 1 million of Versa devices since mid-April. The company also said 2.4 million users had signed up for its female-health tracking service in an even shorter time.

Again, like GPRO, this is a case of brand-new growth in the ongoing second quarter. (It ends in less than two weeks.) Remember, FIT is a small fish with less than $2 billion of market cap in a very big pond. It could have plenty of room for appreciation if investors start to take it more seriously.

There are some ways to know investors haven’t taken it seriously. One is the fact that a third of its market cap is cash. So in reality it’s not a $7 stock but more like a $5 stock. Secondly, even at that higher price it trades for only about 1 times revenue. AAPL, in contrasts, fetches almost 4x sales.

Short interest also accounts for about 12 percent of its float, a vestige of the days when bears hammered it to new lows. But if business is turning around those downside bets could be closed and help “squeeze” the shares higher.

Speaking of bears, the famous short-selling crew at Citron Research estimated on June 11 that FIT could rocket toward $15. William Blair also issued a modestly bullish note on the stock yesterday.

In conclusion, this isn’t a trade recommendation and everyone needs to do their own homework. But FIT could be a turnaround story in tech that still isn’t on a lot of people’s radar.

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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.