Fitbit Stock: Holiday Prospects Look Slim for Fitbit Inc (FIT)

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About a year ago, Fitbit Inc (NYSE:FIT) pulled off a red-hot initial public offering, with FIT stock soaring nearly 50% on its first day on the market. Yet things have certainly been less sanguine since then. Had investors held onto their shares of FIT, the return would have been a horrible 50% loss.

Fitbit Stock: Holiday Prospects Look Slim for Fitbit Inc (FIT)

That brings us to the question of whether, despite all this, there is still an opportunity in Fitbit stock or if investors should run toward a more healthy investment.

Reviewing the FIT Stock Regimen

Fitbit Inc has shown momentum: In the latest quarter, revenues soared by 46% to $586.5 million as the company sold 5.7 million devices. The main driver was the strong uptake with two new products, the Fitbit Blaze and Alta (accounting for 54% of revenues).

FIT also posted adjusted net income of $51.3 million, even though the company invested heavily in R&D, marketing and sales. Consider that the headcount for R&D spiked by 59% to 863 on a year-over-year basis. Technical talent in Silicon Valley is far from cheap.

Although, for investors in Fitbit stock, the biggest piece of good news was the encouraging guidance. The forecast for the current quarter is for revenues of $490 million to $510 million, which compares to the Street consensus of $498.5 million.

Now FIT certainly has some strong competitive advantages. After all, the company is the pioneer of the wearables space, having been around for nearly a decade. The result is that FIT has a keen understanding of the market, has built a thriving ecosystem and has a respected brand. Such things are extremely tough to replicate.

Yet there are existing mega operators that could ultimately put lots of pressure on Fitbit. Just some of its rivals include Microsoft Corporation (NASDAQ:MSFT) and Samsung Electronics (OTCMKTS:SSNLF), as well as Apple Inc. (NASDAQ:AAPL) and Under Armour Inc (NYSE:UA). These companies are still in the early phases with their wearables, but they certainly have the resources to make a major impact on the market.

But there is something else that should cause some worry for holders of Fitbit stock — that is, the lack of clarity on the product road map. For the most part, it appears there will be no new launches in the holiday season — just iterations of existing products. If so, this could mean a flattening in Fitbit’s growth rate.

Bottom Line on Fitbit Stock

Yet this does not mean you should short FIT stock either! Keep in mind that the valuation is fairly reasonable, with the price-earnings multiple at 31. Oh, and the CEO and CFO do not plan to sell any stock this year, which shows confidence. And finally, there is periodic talk of a buyout, which does have some credence as AAPL, MSFT and Samsung definitely consider that the wearables market is very strategic.

But this does not necessarily imply that Fitbit stock is a good buy right now. Investing in a stock for a potential buyout is always dicey. More importantly, if FIT does not have a new slate of products for the all-important holiday season, there may not be any meaningful catalysts for sustainable gains in the shares.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He also operates BizDeductor, which provides tax services for the self-employed and gig workers of Uber, Lyft & Airbnb. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2016/08/fitbit-stock-fit-may-not-healthy-portfolio/.

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