Fitbit has had a rough go of things over the past year. The stock tumbled by 75% in 2016 amid an increasingly competitive market for wearable devices.
In November the company slashed its earnings-per-share guidance for the crucial holiday quarter to just a quarter of what analysts had been expecting.
More recently, Bloomberg News on Wednesday reported that inventories may be piling up, citing an analyst at Cleveland Research. The analyst also reportedly said the company’s suppliers had halted production.
Perhaps not surprisingly, traders have been piling into bets that the stock will fall further. Short interest has exploded in the opening days of 2017, increasing by 16.3%, according to a report sent out by S3 Partners on Friday.
“Short sellers have added more than 20 million shares over the first two weeks of 2017, bringing the total amount of shares on loan to close to 50% of float,” the firm wrote.
So far, those bets look as if they may be late to the party. Shares of Fitbit have managed to hold their own at the start of the new year. The stock is actually higher by 1.9% in 2017 despite the big increase in short interest.
Fitbit reports its fourth-quarter results – the one for which it already slashed forecasts – on February 21, so these traders do face a big risk: Since Fitbit has already warned that things will most likely be bad, and given that so many investors have lined up to profit from a bigger drop, any inkling of good news could actually lead to a huge rally in the form of a so-called short squeeze.
- S3 Partners