Interactive Investor

Fitbug collapses after US court shock

28th January 2015 12:19

Lee Wild from interactive investor

Fitbug, the maker of wearable fitness devices and apps, lost 40% of its value at one stage on Tuesday after its trademark dispute with US rival Fitbit hit a brick wall. While the company's ultimate success did not hinge on the outcome, it was potentially the source of a huge windfall and would have been a big blow to one of its major competitors.

"Fitbug Holdings…has today learnt that in its trademark dispute against Fitbit Inc, the District Court for the Northern District of California, San Francisco Division has granted summary judgment in Fitbit's favour on the defence of laches (an unreasonable delay by the plaintiff in bringing the claim)," the firm said.

"Fitbug is currently in discussions with its legal advisors and is considering its options."

Having traded as high as 26.5p in November, near to 8p Friday and 6.2p immediately prior to the shock news at 3pm on Tuesday, Fitbug shares plunged as low as 3.75p, a three-month low. Clearly, this is a significant dent to sentiment and the shares remain volatile.

The hugely expensive legal case alleged trademark infringement, unfair competition and unfair business practices. There were high hopes that if things went Fitbug's way, there could be massive compensation. That now seems unlikely.

And we've still no idea how well Fitbug's range of wearables devices sold in US retail giant Target and supermarket chain Sainsbury's over Christmas. Given January is a key month for New Year resolutions - sales of gym memberships and fitness gizmos rocket - management is most probably waiting for a probable boost to numbers before the big reveal.

Without any forecasts from wither the company of analysts, valuing the business remains difficult; but not impossible. In October, we ran some numbers using various assumptions and came up with the following:

If we assume Fitbug generates sales of £3 million in 2015, trades on an aggressive EV/Sales multiple of 5 and there is no change in debt, the shares would currently be worth 5.3p. It's the same with sales of £5 million and a ratio of 3. As a comparison, if sales rocketed to £4 million and the shares traded on 3 times EV/Sales, the share price would be 3.6p.

Click here to read more: What Fitbug Holdings is really worth.

We'll revisit these estimates when Fitbug firms up sales.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.