I'm not FCA authorised, don't view any of this as investment advice, etc.
One of the many issues with tech companies is that they're a real sod to value in any standard way:
PE ratios are often irrelevant, because the company may not make any money and often their balance sheets are pretty bare too, because you can only value assets based on what someone is willing to pay for it elsewhere and because technology sector evolves so quickly companies often can't get this information.
In the case of Fitbug, there are a few things we can do to helps get an idea of the company's current and potential future value:
1. Fitbug Vs Fitbit.
I feel that comparing Fitbit and Fitbug is one of the best ways to value Fitbug, because they both operate in the wearable health sector and we know that their products are very similar because of the trademark infringement lawsuit embarked upon by Fitbug against Fitbit.
Fitbug is currently worth around £22 million and Fitbit (privately owned) was worth $300 million in March of 2013 (around £191 million).
Currently, Fitbug is valued at around 11.5% of the value of Fitbit in March 2013, which may or may not be a fair valuation depending on your opinions of both companies.
In my opinion, the two companies are more similar than Fitbit would like us to believe with Fitbit's apparent aims in its last funding round (August 2013) to be to release new products and grow its global footprint - exactly what Fitbug is currently doing, retailing in Apple online stores across these regions (and possibly in stores on the ground).
2. Lawsuit:
A quick point here, but if Fitbug win their lawsuit against Fitbit, then they will seek to agin at least $10 million and potentially as much as $30 million (between £6 million and £19 million). Based on the information currently available it certainly looks as if Fitbit will look to settle outside of court, so whilst this case is yet to be won, it does look promising for a good payout for Fitbug of almost as much as its current market capitalisation.
3. Sales Forecasting.
The information that we really need to know however is the sales figures between now and the next set of results (I'm going to do this for just the Fitbug Orb to make life easier) and an idea of how much Fitbug make per unit sold and we can have a stab at this, even if it's going to be very crude, so please do your own research and don't take my figures as true:
We know that Fitbug are retailing in 1800 Target stores in the US and in 293 Sainsbury's stores in the UK. We also know that they are being retailed online and or in store by major retailers like Amazon, Apple, Tesco, Argos, Dixons, Walmart, Kmart, Frys, etc. We also shouldn't discount all of the smaller online stores that are retailing Fitbug's products too.
Now, I'm going to run these numbers a few times, but let's assume that Fitbug only makes £2.50 profit per unit it sells and let's assume that these 1800 Target stores and these 293 Sainsburys stores only buy 88 units each from Fitbug between being stocked and the sales figures being released (I've picked 88 because it's the online sales figure from tiny online website I've never heard of in the last 30 days - see the references below for more detail):
1800+293=2093 stores
2093*88*2.50= £460,460 Fitbug Profit
Now, these figures obviously are ignoring online retailers and any other on the ground retailers to whom Fitbug will be selling to based on the demand for their products. However, the point is that even if we take these very low figures for sales, discount the majority of Fitbug's total retailing presence and give them a very low profit margin per unit, they're still making a hypothetical (almost) £0.5 million profit.
I'm now going make some more assumptions based on the following points:
- Applying the sales figure of 88 units to Target and Sainsburys is probably too low and could be realistically increased to 100, especially with the news that a lot of these outlets along with others are sold out or have low stock of the Fitbug Orb.
- I'm going to add into this calculation a quarter of Tescos total stores to the mix (not all will be big enough to sell the Fitbug - 2500/4) along with total number of Argos stores (737), Dixons (530+322), Kmart (1077) and Frys (34):
This gives a total number of stores on the ground of 1800+293+(2500/4)+737+530+322+1077+34
Total number of stores= 5,418
Now, let us assume that each store buys 100 units from Fitbug:
5,418*100*2.5= £1,354,500 Fitbug Orb Profit
Let's increase our profit margin to 10% of the retail price of the product (from 5%).
5,418*100*5= £2,709,000 Fitbug Orb Profit
With 44% of Christmas shopping being done online last year, it makes it harder to get a real idea of (what I perceive as) the huge potential this company has in terms of sales. To get an idea of what online profit from sales are likely to be like, along with the on the ground store profit from sales, we could probably just double that last figure, giving us around £5,418,000 - food for thought!
However, I think that realistically, as Tesco are currently (as I write this) out of stock online, we could add half again to this figure at least, as major retailers are likely to have tested the waters initially with their wholesale purchases and purchased small lot sizes. Due to this, I feel that it wouldn't be unreasonable increase this again:
5,418,000+2,709,000= £8,127,000
I'm going to round this up here, but the point of these forecasting (not to be used for investment advice, I'm not FCA authorised, etc) is to give an idea of the potential that Fitbug has between now and the Christmas results being released. Remember that these forecasts are only for sales of the Fitbug Orb (not the only product Fitbug offer), these are excluding all online sales of the Fitbug Orb, these are excluding any health insurance/provider related sales and they based only on the sales between late October and the expected January results.
Personally, I believe that the actual profit from sales will be significantly higher than this, but I implore people to do their own research and decide for themselves.
Extra Reading:
Fitbug - The Gift That Keeps On Giving:
http://themaskedstocktrader.blogspot.co.uk/2014/11/fitbug-gift-that-keeps-on-giving.html
All the best,
The Masked Stock Trader.
Sources per Point:
1. Fitbug Vs Fitbit.
Fitbit Valuation:
http://mobihealthnews.com/20623/report-fitbit-raises-30-million-at-300-million-valuation/
Fitbit's Aims:
http://techcrunch.com/2013/08/13/fitbit-43m/
2. Lawsuit:
$10,000,000 minimum, as seen on page 12, point number fifty-three and if an out of court settlement is reached it could be from 12th December onwards:
download.html.
3. Sales Forecasting.
Estimating Sales Revenue:
http://www.lse.co.uk/share-regulatory-news.asp?shareprice=FITB&ArticleCode=rdzzvudg&ArticleHeadline=Fitbug_to_be_stocked_by_Target_and_Sainsburys
Small Online Outlet Sales Figure:
http://shirinsevents.com/hype.php?id=fitbug-orb-activity-tracker-retail-packaging-black-p-14145.html?zenid=f3cbd595cd93e572e891c5d5ac43080c
Tesco Store Number:
http://en.wikipedia.org/wiki/Tesco
Argos Store Number:
http://en.wikipedia.org/wiki/Argos_(retailer)
Kmart Store Number:
http://en.wikipedia.org/wiki/Kmart
Fry Store Number:
http://en.wikipedia.org/wiki/Fry%27s_Electronics
Online Shopping Statistic:
http://www.msn.com/en-us/news/us/report-44-percent-of-holiday-shopping-will-be-done-online/vp-BBbb4St
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