As Fitbit Inc (NYSE:FIT) went public over a week ago, it has already gained the attention of institutional investors. One of them, John Griffin‘s Blue Ridge Capital, has already disclosed an 8.32% passive stake in the company, which contains 3.50 million class A shares. Meanwhile, the stock has gained around 13% since the IPO and is surging on Tuesday on the back of a report from Bloomberg that Fitbit’s products managed to outsell Apple Inc. (NASDAQ:AAPL)’s Watch in spring. This is definitely good news for the company, as in anticipation of Apple’s smartwatch, the sales of Fitbit’s products plunged. However, the company seems to be gaining momentum with sales, which is not surprising taking into account that Fitbit sells devices in the range of $60 to $250, versus Apple Watch’s starting $350 price tag.
Fitbit Inc (NYSE:FIT) went public with 22.39 million class A shares, while stockholders sold 19.67 million shares. Underwriters also have fully exercised, over-allotment options of 5.49 million shares. The shares have been sold at $20 per unit, slightly higher than anticipated, but the IPO can be considered a success, taking into account the stock’s appreciation in the first days of trading.
It is certain that Fitbit will attract the attention of tech savvy investors and we have to wait for a couple of weeks until 13F filings start to come up to gather more details on the hedge fund sentiment regarding Fitbit. However, Blue Ridge disclosing a relatively large position is already a positive sign to anticipate a bullish sentiment from hedge funds. On the other hand, Garmin Ltd. (NASDAQ:GRMN), which is one of Fitbit Inc (NYSE:FIT)’s closest competitors, witnessed an outflow of capital during the first quarter. A total of 21 funds disclosed holding $257.62 million worth of Garmin’s stock at the end of March, versus 30 funds with $537.55 million a quarter earlier. The next round of 13F filings will show if the interest of hedge funds has declined during the second quarter, amid Fitbit’s IPO.
We follow hedge funds like Blue Ridge because our research has shown that their stock picks historically managed to generate alpha even though the filings are up to 45-days delayed. We used a 60-day delay in our back tests to be on the safe side and our research showed that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012, during which time they have returned 144%, outperforming the S&P 500 ETF by nearly 85 percentage points (see more details here).
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Blue Ridge Capital is a fund founded by John Griffin in 1996. Prior to founding his own hedge fund, Mr. Griffin was known as the right-hand of billionaire investor Julian Robertson. As of the end of March, Blue Ridge holds an equity portfolio valued at $8.77 billion, which has around 16% invested in tech stocks. Among Mr. Griffin’s top picks is Sensata Technologies Holding N.V. (NYSE:ST), a company that is also in the Scientific & Technical Instruments industry, the same as Fitbit. In addition, Blue Ridge holds a bunch of blue chip tech stocks, such as Priceline Group Inc (NASDAQ:PCLN), Facebook Inc (NASDAQ:FB), LinkedIn Corp (NYSE:LNKD), and Alibaba Group Holding Ltd (NYSE:BABA).
To sum up, Blue Ridge buying into Fitbit Inc (NYSE:FIT) should be seen as a bullish sign to buy the stock, in case one might still need one. All in all, Fitbit looks like a sound investment at the moment, which is also supported by the ratings set by the analysts that initiated the coverage on the stock, including RBC Capital, which has an ‘Outperform’ rating and a price target of $45.00.
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