Can Fitbit Keep Going After Yesterday's 13% Pop?

By Markets Fool.com

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There are many steps to go to get back on top, but Fitbit is finally moving in the right direction. Image source: Fitbit.

Fitbit(NYSE: FIT)was one of the biggest losers during the first half of the year. Fitbit stock plunged 59% through the first six months of the year, but like any good football game it pays to stick around for the second half.

Fitbit shares soared 12% last month, and August is off to another scintillating start. Shares of the leading player in wearable fitness moved 13% higher yesterday after posting well-received quarterly results.

Revenue clocked in at$586.5 million, 46% ahead for the prior year's second quarter. Fitbit moved 5.7 million devices during the period. That's just a 27% year-over-year advance. Fitbit's generating more money per device as a result of rolling out high-end trackers and entering the pricier smartwatch market. The Fitbit Blaze smartwatch and Alta tracker -- two new products introduced during the first quarter -- accounted for more than half of this period's revenue.

Gross margin slipped during the period. Adjusted earnings plunged 42% to $0.12 a share. Investors knew that net income would be going the wrong way. Fitbit had warned earlier this year that profitability would be pressured this year as pushing out new products and the increased marketing demands of this competitive niche eat away at the bottom line.

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It could've been worse. Analysts were only holding out for an adjusted profit of $0.11 a share on $578.5 million in revenue.

It's all about the outlook

Landing ahead of the pros is only part of the art of working out for investors. Shares of Fitbit plunged 25% the week it reported its first quarter results despite besting the pros on both ends of the income statement.

Guidance clearly wasn't as gloomy this time around. The $490 million to $510 million that Fitbit is targeting in revenue for the current quarter may be a sequential slide, but the midpoint of $500 million represents a year-over-year gain of 22% and is just ahead of the $498.5 million that analysts were holding out for.

Fitbit sees sequential improvement in gross margin and adjusted net income. It's forecasting $0.17 a share to $0.19 a share in adjusted earnings, and Wall Street pros were bracing for a profit of just $0.17 a share. If Fitbit merely hits the midpoints here -- and that's not a stretch since it has consistently cranked out conservative guidance in its brief tenure as a public company -- analysts will have to juice up their models.

Fitbit stock still has a long way to go to get back to where it was when the year began. It even has a long way to go before revisiting its IPO price of $20 from last summer. With Blaze and Alta expected to slow in their third quarter of availability a lot will be riding on the new products that Fitbit will announce at an industry show in Berlin next month. Fitbit's come a long way, but it still has a long way to go before getting back to where it needs to be.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Fitbit. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.