FIT Stock – Avoid Fitbit in 2015

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Fitbit (FIT) pulled off a very successful IPO just a few months ago. FIT stock, originally priced at $20 a share, opened around $30 and quickly ran up above $50.

FIT Stock - Avoid Fitbit in 2015Unfortunately, as with so many hyped-up IPOs, Fitbit stock couldn’t hang on to those gains. The fitness wearable company has faded steadily since an August peak of nearly $52, and if you bought at that top, you’re sitting on a nearly 40% loss in FIT stock in just a matter of weeks.

Volatility is the norm for recent IPOs, and the bulls insist that Fitbit stock still has a lot to offer in the longer term. After all, it is at the head of the pack when it comes to this emerging consumer technology and continues to see impressive growth.

However, I remain skeptical of FIT stock, given the decidedly downward momentum for shares and the ever-present risk of changing consumer tastes damaging this stock if its devices become fads instead of fashionable.

Because of these risks, I simply don’t see much logic in making a bid for Fitbit anytime in 2015.

FIT Stock Sells Off After Earnings

After the first Fitbit earnings report as a public company, FIT stock shed 15% in short order. Sure, profits topped expectations by a wide margin, but revenue growth is slowing going forward and margins are weaker than some investors were looking for.

You can call that nit-picking, but the company was trading for a forward price-to-earnings ratio of nearly 50 before that report … and that doesn’t leave a lot of room for error.

Things are more fairly valued for FIT stock now, with a forward P/E of around 33. However, the company has to counteract both the extreme negative sentiment of the short-term and the long-term risks of competition.

The fitness wearables space includes some strong offerings from tech firms including consumer technology giant Apple (AAPL) and private companies like Jawbone. There are also big hopes at companies like fitness apparel giant Under Armour (UA), which have brand appeal and are eager to get in on this budding market.

And even if Fitbit can remain at or near the top of the heap? Well, history has shown us that rapid early adoption does not guarantee long-term success. Take Garmin (GRMN), a company that exploded in 2006 and 2007 on the rise of GPS navigation technology. The subsequent launch of smartphone maps coupled with the saturation of the market left Garmin in the dust, and shares remain less than one-third of their all-time highs.

It’s no wonder investors got the jitters when FIT stock already showed slower-than-hoped-for growth and problems with margins. Fitbit has a lot of appeal now, but what Wall Street is looking for is an assurance that growth and success will be there next quarter and next year.

After the first Fitbit earnings report, the jury is still out. One 10-Q filing doesn’t mean the end of the world for FIT stock, of course, but investors would be wise to wait and see what the next report holds before they go bargain hunting on this pullback.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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