Market Overview

Short Sellers Weren't Surprised By Fitbit Warning

  • This wearbles maker's guidance cut and announced layoffs surprised many.
  • But short sellers had pounced on its shares in the most recent period.
  • The share price rose but gave up most of its gain in the first two weeks of January.

The guidance cut and announced layoffs at Fitbit Inc (NYSE: FIT) may have taken many analysts and investors by surprise, but short sellers appeared to see something coming. Perhaps they anticipated that third-quarter demand softness would carry over into the fourth quarter, or simply have been aware that wearables have underperformed across the industry this past year.

Between the December 30 and January 13 settlement dates, this San Francisco-based maker of health and fitness tracking devices saw the number of its shares short surge more than 22 percent to around 54.29 million. That was the highest level of short interest since last November, and almost twice as much as a year ago, and it represents a whopping 38.9 percent of the total float. The average daily trading volume rose during the period, but the number of days it would take to cover all short positions remained at more than four.

Earlier this month, Jim Cramer called the future of Fitbit blurry. Its share price ended the two-week short interest period less than 2 percent higher, though it was up nearly 11 percent at one point. The S&P 500 also gained less than 2 percent in that time. The stock pulled back a little more afterward, then plunged more than 17 percent on Monday. The consensus recommendation of analysts polled by Thomson/ First Call is to hold shares. The company is expected to report fourth-quarter results late in February.

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