Bob Peck: Fitbit's $1.4 Billion Selloff Creates 'Opportunity'

• Fitbit Inc FIT shares have declined 42.52 percent over the past six months, dropping almost to their 52 week low on January 5, at $24.30.
• Robert S. Peck of SunTrust Robinson Humphrey has reiterated a Buy rating and price target of $48 on the company.
• Peck believes that the 18 percent decline in the share price on January 5, driven by several investor concerns, was overdone.

Analyst Robert Peck explained that the stock declined on investor concerns related to satisfaction with the launch of the new smartwatch, Blaze, increasing competition, absence of any potential positive pre-announcement for 4Q, the share lock up expiration in February and the class action lawsuit related to alleged fraudulent marketing of devices.

According to the SunTrust report, “The stock's ~18% decline eviscerated ~$1.4B of market cap value on 5x the average trading volume. We think that even if the market were disappointed with the ultimate demand potential of the new product, that the sell off was overdone.”

Peck mentioned that even if one assumed that Fitbit had pre-committed inventory risks of 3 million units, at a cost of about $90 per unit, it would imply a risk of about $250 million. If there was any marketing and/or re-tooling commitment, it would add only up to a potential risk of $300 million.

“While we acknowledge that the competition announcements and lock up expiration add risk value, we think the almost additional $1B of value destruction on top of this worst case scenario was overdone,” Peck stated.