Why Fitbit Inc. Stock Jumped 17% in August

Markets Motley Fool

What happened

Continue Reading Below

Fitbit (NYSE: FIT) shareholders saw their stock gain 17% last month, according to data provided by S&P Global Market Intelligence.

Shares are still in deeply negative territory so far in 2017, though, and the wearables specialist's stock remains lower by almost 70% since the start of 2016.

So what

Fitbit's August bounce was sparked by an encouraging second-quarter earnings report released early in the month. The company sold 3.4 million of its devices in that period, which was a 14% improvement over the prior quarter.

"Consumer demand in the second quarter was better than anticipated," CEO James Park said in a press release at the time, "enabling Fitbit to reduce channel inventory and generate better sales."

Continue Reading Below

As more evidence of stabilizing trends, Fitbit enjoyed an uptick in gross profit margin as its average selling prices rose by 2% to just over $100 per device.

However, Fitbit's results still depict a business in deep contraction. Sales dove 40% year over year in the second quarter, and the company's 3.4 million device sales look much weaker when compared against the prior year's 5.7 million result. The tech specialist isn't profitable, either, having generated a $54 million loss over the last six months.

Now what

Still, the better-than-expected results to date give Park and his team confidence that Fitbit will meet its full-year growth target of revenue between $2.5 billion and $2.6 billion. Management expects adjusted earnings of $430 million to $490 million. Hitting those figures would mark solid progress at a rebound for Fitbit while also illustrating how much harder it has become for wearables producers to generate sustainable profits in this industry.

10 stocks we like better than Fitbit
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Fitbit wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 1, 2017

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Fitbit. The Motley Fool has a disclosure policy.