Brocker.Org: FitBit Breaks Out as Earnings Exceed Expectations


FitBit Inc. (FIT) jumped more than 12% on Thursday after reporting better-than-expected revenue and earnings. While revenue fell more than 40%, the company beat its own guidance and analyst estimates while a net loss of $60.1 million was also better than projected.

The company anticipates generating second quarter revenue of $330 million to $350 million and earnings per share of $(0.14) to $(0.17). For FY 2017, the company issued guidance of $1.5 billion to $1.7 billion – compared to a $1.58 billion consensus – and a loss of $0.44 to $0.22 per share – compared to a consensus loss of $0.35 per share.

The unexpectedly positive results led short sellers to cover their positions and bolster the stock price. According to ShortSqueeze, the stock experienced a 7% decrease in the percentage of the float being shorted, while the figure still stands at 24.38% with 5.7 days to cover. Long-term investors may also be bullish on the company’s upcoming smart watch launch and potential opportunities in the enterprise sector in the future.

From a technical standpoint, the stock broke out from a descending triangle chart pattern and subsequently broke out past its R1 resistance at $6.03 and R2 resistance at $6.35. The relative strength index (RSI) and moving average convergence-divergence (MACD) have both been trending higher since mid-March. The MACD recently crossed above the zero line in a bullish signal, but the RSI is approaching overbought levels at 65.02.

Investors will be closely watching to see whether the earnings beat was a one-time event due to low expectations or a sign of positive things to come. Meanwhile, traders will be closely watching the stock’s new support levels to see if their support a further rally.

Charts courtesy of Author holds no positions in the stock(s) mentioned except for in passively-managed index funds.