It has been an interesting couple days for shares of much-beleaguered Fitbit Inc. (FIT) , which rose 31% on Monday and another 7% on Tuesday on the back of a reported takeover offer from Google parent Alphabet Inc. (GOOGL) . Those moves occurred on huge volume, with nearly 65 million shares traded on Monday and 40 million on Tuesday. This is the most excitement we've seen for FIT in ages.
There has been little joy for Fitbit lately; while the producer of wearable fitness devices has continued to exceed consensus earnings estimates and make inroads into the health space, the progress toward sustainable profitability has been too slow for the market. This one-time cult stock traded in the high $40s in 2015 but had slipped below $3 this past August after disappointing guidance issued with its second-quarter earnings. I saw that as a buying opportunity and took advantage of it (or it took advantage of me, depending on how this current situation plays out).
I've long viewed the company as a potential acquisition candidate -- so long (three years now) that the saying "even a stopped clock is right twice a day" easily could apply. FIT has had some of the same attributes of other small names that have been acquired in recent years: relatively large levels of cash, little to no debt, strong brand name, and trading a low levels of net current asset value, or NCAV.
While we presume that Fitbit and Alphabet are in acquisition talks, we don't know what a potential deal might look like. Based on current trading and option activity, you could presume that if there is an offer it could be in the range of $7 to $8 a share, but it should be higher. Keep in mind that FIT currently has $2.20 per share in cash and short-term investments on the balance sheet and no debt (there is operating lease liability of $99 million on the books, which until a recent accounting change was off-balance sheet).
Alphabet has deep pockets, with more than $120 billion in cash and short-term investments as of last quarter and if it truly desires to make inroads into the wearables market and exploit Fitbit's progress in the health arena this would be a relatively cheap way to do it for the tech giant, which is a holding of Jim Cramer's Action Alerts PLUS charitable trust.
Adding to the intrigue is that there are still more than 29 million FIT shares sold short. In addition, Fitbit is scheduled to report earnings on Monday. We should know shortly whether the planets are aligning for a deal.