Is There More Upside For Fitbit Inc (FIT)?


There were only a few companies that have debuted in the current year  still trading above their IPO price. Fitbit Inc (NYSE:FIT), which came out with its IPO in June, is one among the selected few to continue to attract investors’ attention with more than 50% gain from the IPO price. The wearable maker even announced a follow-on offering last month triggering some anxious moments for investors whether the stock has the potential to grow further. It was quite natural that investors would be worried whenever a company comes up with the follow-on offering within a period of six months. Therefore, let’s look at the outlook of the stock and see whether it can remain as one of the top favorites in the upcoming year too.

Breakthrough In Wearable Technology

The current year can probably be called as a sort of breakthrough year for wearable technology as Apple Inc. (NASDAQ:AAPL) too joined the bandwagon with its Apple Watch. However, it was Fitbit Inc (NYSE:FIT) that is enjoying the lead over the tech giant’s wearable product. For instance, Fitbit’s tracking product witnessed 4.7 million unit shipments representing 101.7% YOY growth. The entry of Apple Watch has dented its market share to 22.2% in the third quarter from 32.8% in the year-ago quarter. On the other hand, Apple Watch witnessed a shipment of 3.9 million units with a market share of 18.6%. That suggests that the gap is narrowing between the two companies. However, both the companies’ product was different in nature.

The key to success for Fitbit Inc (NYSE:FIT) is the pricing of the product along with focus on health. The company’s tracker product is available anywhere from $50 to $200. However, that is not the case in respect of Apple Inc. (NASDAQ:AAPL)’s Apple Watch. The tech bellwether’s Apple Watch’s starting price is at $349. That makes consumers afford on the tracking device. Another reason for its success is that smartwatches are not meant to replace any fitness tracking device as some of the people theorize. Therefore, both can co-exist as the two categories of the products were witnessing a strong YOY growth. Also, the market is expanding into a wide product range with various features like step tracking and smartphone-like experience.

Best Selling Health And Personal-Care Product

One of the favorable factors for Fitbit Inc (NYSE:FIT) is that it was on the hot list of gift for the current year’s holiday season. The company’s Charge HR was holding the numerouno slot on Amazon.com, Inc. (NASDAQ:AMZN)’s best-selling health, as well as, personal care products list. Similarly, the company held four of the first ten positions in the category as the device prices ranged between $79 and $145. The company’s product was clearly standing out since the remaining top ten consisted of only batteries, paper towels, disinfecting wipes, and toilet paper. Significantly, the fitness tracker generated 12% of its total revenue in the first nine-month period of the current year. That also demonstrated the consumer’s confidence in the product and the medical fraternity too backed the product, which was a big factor to turn the tide.

As far as investors were concerned, there were some worries like Fitbit Inc (NYSE:FIT) is a one product company much like GoPro Inc (NASDAQ:GPRO). There were also reasons for investors concerns. The fitness tracker firm came out with its IPO exactly a year after GoPro came with its IPO in June 2014 at $24 a share. Currently, it was trading less than $18, which meant a loss of 25% from the IPO price leave alone any growth. Though Fitbit’s stock reached $51.90, currently it was trading more than 37% down from the peak level. That gives a concern to investors as the pattern might be similar to the wearable action camera maker. However, the drop in price was more to do with the follow-on offering and fears about fresh competition. But the company’s product is a quite sought after one globally, since it was associated with healthcare whereas camera cannot be termed in the same fashion.

Enjoys Broader Appeal

Comparing Fitbit Inc (NYSE:FIT) and GoPro Inc (NASDAQ:GPRO) has pitfalls due to their product profiles. There is enough to support the fitness tracker firm to differentiate from the wearable camera maker. For instance, GoPro appears to have exhausted its avenue for revenue growth due to its maxing of its audience rather than the athletes. On the other hand, Fitbit enjoys a wider appeal for anyone interested in leading a healthy life can opt for its device. Another factor is the unrestricted apps for fitness tracking, as well as, the technology, which promote healthy lifestyles. On top of this, some of the insurance firms have even slashed premiums for those who were ready to have fitness trackers. Similarly, some companies were procuring in bulk to hand them over to their employees. These positive factors place well for the stock to be a favorite one next year. The wearable market is growing and expanding as fast as technology lets it, while GoPro found a way to extract more from a camera market that had been replaced by smartphones.

Currently, Fitbit Inc (NYSE:FIT) shares are trading about 29 times of the estimated earnings forecast for next year. While the valuation does not suggest a sky-high one, there is also a caution that if consumers get tired of the company’s product, it could lead to burning of investors’ money. However, that seems to be too pessimistic about the stock. The reason is that the company is yet to see a meaningful competition for its product and it is not likely to happen next year. Most recently, Barclays upgraded the stock to a rating of Overweight and kept a price tag of $49. Its analyst, Mathew McClintock, said that the fitness tracking firm was the rapidly growing meaningful consumer company with YOY growth of more than 100%. He said that there was a true lack of growth stories currently. Therefore, he justified that the current valuation provides an opportunity for upside. Also, eleven of the 18 analysts have rated the stock as ‘Buy’.

Conclusion

Fitbit Inc (NYSE:FIT) is enjoying a leadership position in the fitness tracking device. Though the company might see competition coming up from Apple Inc. (NASDAQ:AAPL) or Microsoft Corporation (NASDAQ:MSFT), its product has already established a good lead. It might take some more time for other companies to question the dominance of Fitbit. Therefore, the company is well-placed to deliver another year of strong returns to investors.

Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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