Fitbit Inc. (FIT) shares dropped almost 17% after providing disappointing first quarter guidance. For the current quarter, the maker of wearable health tracking devices, forecasted revenue between $420-440 million, much lower than the analyst consensus of $484 million. Earnings per share was targeted at flat to $0.02 per share, a big miss than from Wall Street’s forecast of $0.24.
For the fourth quarter, earnings per share came in at $0.35 earnings per share, ten cents higher than the analyst estimate. Revenue also beat with $712 million, the forecast was eyed at $639 million. The company also announced that they will be releasing several new products in the first quarter. They are anticipating additional manufacturing costs.
Last week shares dropped to a record low after first-time insiders, investors who purchased shares at the initial public offering of $20 a share, were finally allowed to sell shares from a secondary offering.
Price action on the FIT 240-minute chart shows the initial after-hours selloff was confirmed with a bearish ABCD pattern. Point D was confirmed targeted with both the 200.0% Fibonacci expansion level of the B to C move and the February resistance level. If valid, we could see price continue to drop towards the lower boundary of the recent bearish channel. Initial support may come from the $12.25 area.
If price does start to stabilize, initial upside may target the $16.00-$16.50 level.
The Trade: Sell FIT at $14.50, with a stop loss at $15.50 and a take profit at $12.50. The Risk/Reward Ratio is 1:2