This Metric Says You Are Smart to Sell Fitbit Inc (FIT)

The third quarter was a rough one for most investors, as fears of an interest rate hike in the U.S, a weakening economy in China, and a stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let’s look at how this market volatility affected the sentiment of hedge funds towards Fitbit Inc (NYSE:FIT), and what that likely means for the prospects of the company and its stock.

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Fitbit Inc (NYSE:FIT) was in 20 hedge funds’ portfolio at the end of September. FIT shareholders have witnessed a decrease in activity from the world’s largest hedge funds lately. There were 27 hedge funds in our database with FIT holdings at the end of the previous quarter. At the end of this article we will also compare FIT to other stocks including CenterPoint Energy, Inc. (NYSE:CNP), AMERCO (NASDAQ:UHAL), and Hertz Global Holdings, Inc. (NYSE:HTZ) to get a better sense of its popularity.

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At the moment there are a lot of metrics stock traders can use to size up stocks. A duo of the most underrated metrics are hedge fund and insider trading activity. Experts at Insider Monkey, a website specializing in hedge funds, have shown that, historically, those who follow the best picks of the best fund managers can beat their index-focused peers by a very impressive margin (see the details here).

Keeping this in mind, we’re going to analyze the latest action regarding Fitbit Inc (NYSE:FIT).

Hedge fund activity in Fitbit Inc (NYSE:FIT)

Heading into Q4, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from the previous quarter. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes meaningfully.

When looking at the hedgies followed by Insider Monkey, John Griffin’s Blue Ridge Capital had the number one position in Fitbit Inc (NYSE:FIT), worth close to $39 million, corresponding to 0.4% of its total 13F portfolio. The second largest stake is held by Water Street Capital, led by Gilchrist Berg, holding a $25.5 million call position; the fund has 1% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish encompass Chase Coleman’s Tiger Global Management LLC, Christopher R. Hansen’s Valiant Capital and Ken Griffin’s Citadel Investment Group.

Since Fitbit Inc (NYSE:FIT) has experienced a decline in interest from hedge fund managers, it’s safe to say that there were a few funds that slashed their full holdings in the third quarter. Intriguingly, Daniel Benton’s Andor Capital Management dropped the largest investment of the “upper crust” of funds monitored by Insider Monkey, comprising close to $13.4 million in stock. Karthik Sarma’s fund, SRS Investment Management, also dropped its stake, about $7.6 million worth. These transactions are interesting, as total hedge fund interest dropped by 7 funds in the third quarter.

Let’s go over hedge fund activity in other stocks similar to Fitbit Inc (NYSE:FIT). We will take a look at CenterPoint Energy, Inc. (NYSE:CNP), AMERCO (NASDAQ:UHAL), Hertz Global Holdings, Inc. (NYSE:HTZ), and Everest Re Group Ltd (NYSE:RE). This group of stocks’ market values resemble FIT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CNP 25 267330 0
UHAL 27 290247 5
HTZ 54 3484224 -13
RE 27 735366 3

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1.19 billion. Hertz Global Holdings, Inc. (NYSE:HTZ) is the most popular stock in this table. On the other hand CenterPoint Energy, Inc. (NYSE:CNP) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks, Fitbit Inc (NYSE:FIT) is even less popular than CNP. Considering that hedge funds aren’t fond of this stock, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.”