FitBit ($FIT) – Another “West Coast” IPO

$FIT FitBit Goes Public (And No One Seems To Mind)

Last week, FitBit stock started trading on the New York Stock Exchange at $30.40 per share, 52% higher than the price of the initial public offering (IPO) price of $20.00. (Source: CNBC.com) The stock closed on Friday June 20, 2015 at a price of $32.50 after reaching a high of $33.95 in less than two days of trading.

FitBit $FIT Two Day Chart of 5 Minute Candles
FitBit $FIT Two Day Chart of 5 Minute Candles

As I listened to the business media reaction to the IPO, I could not help but notice the lack of negative sentiment.  FitBit is already profitable, shushing the usual nay-sayers. The price action was also strong, which makes investors happy about it, and gives the media something positive to broadcast. And much like the FitBit product line, there were two distinct camps: those who love it, and those that simply don’t care (instead of the more common ‘love it or hate it’ division on Wall Street when it comes to IPOs.)

So, if the stock is anything like the FitBit product line, and its ‘fit’ community, then Wall Street may continue to see the love grow on $FIT next week, as the rest of the market deals with its 2015 mood swings.

Why $FIT Smells A Lot Like $GPRO $RWLK and $LOCO 

$FIT FitBit is what I like to call a “West Coast Stock”.  Not only is it headquartered in San Francisco, CA, but it also has a certain “tech appeal” that resonates in the hearts of what I call “West Coast Investors”. Notice that the word investor is included in the quotes.  An example of a West Coast Investor might be a current or former Facebook employee who has a lot of extra money and is looking to “invest” into the next Facebook ($FB) or Tesla ($TSLA) or Chipotle Mexican Grill ($CMG).

Since these West Coast Investors are early adopters of technology, and usually made their money on some form of technology, they also tend to invest into (chase) other technology stocks like GoPro ($GPRO), Gogo ($GOGO), or ReWalk Robotics Ltd ($RWLK) which is not located on the west coast, or even in America, but I still considered it a “West Coast IPO”.  ReWalk makes medical exoskeletons, and since a lot of people on the West Coast are gamers, and/or work in the video game industry, I think there was a video game / robot virtual connection, which pushed the stock up over $43 dollars per share. It settled Friday at $11.86, and I am sure there are lots of disgruntled folks who bought in much higher, and have decided to hold their shares as a long term investment.

Similarly, $LOCO had a strong IPO before shares topped out at their 52 week high of $41.70.  Its price is now $21.45 per share.  GoPro ($GRPO) got as high as $98.47 per share, before falling back to below $40 pps.  $GPRO closed this week at $57.97.  These momentum plays are subject to quick pullbacks after their initial run-up, which also illustrates that they are “overbought” by West Coast Investors who may also be learning to “trade”, getting stopped out on the red market days, only to see the stock recover again. This causes them to regret their sell, and so buy in again at the highs, driving the pps higher and higher until it can’t take any more.  The Wall Street analysts set their price targets lower, the bears emerge, and the momentum shifts drastically downward.

My hypothesis continues: I think that Wall Street is somewhat disconnected and late to the party on many of these “West Coast” IPOs, maybe because they have never eaten at El Pollo Loco, but more likely, they don’t understand the “West Coast Investor” attitude.  I don’t think they realize how much “fun money” is floating around Silicon Valley right now, and how many tech-centric thirty-somethings are jumping into the stock market, day trading on their cell phones based on overall uptrends in technology, or buying shares based on something they read on Twitter five minutes ago.

My theory is that the typical “west coast investor” doesn’t have more than a year or two experience with stocks; but since they have much more access than previous generations, and are more comfortable with transactions over the internet, they dove into the stock market head first, tablet in hand, and have since rode the tech sector trend upwards. Many “west coast investors” have taken huge losses because of their inexperience and devotion to the momentum stocks they purchased, but since they get paid so much, they don’t really care. They had money to lose, and lost it, while still having some luck in the market, keeping them in it.

Which brings me back to FitBit ($FIT), and how it fits this west coast investor perfectly. Its west coast tech; its cloud; its early-adopter; and more importantly, its not getting any hate from Wall Street (yet), so I expect the love to grow on this stock this week, with a lot of buy-and-hold-ers who may easily turn into bag-holders as the momentum eventually shifts.  The top is always hard to predict, (but not as hard as asking a FitBit user to give up their device: check out this post I wrote over a year ago, about how FitBit and other wearable tech can be very addictive.)

In full disclosure, I currently hold a very small position in $FIT.  I am currently bullish, but I could also exit the trade this week if the charts and uptrend do not hold up.  I am not a financial adviser and I am not giving a buy or sell recommendation, ever.

 

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