The argument for buying Fitbit Inc (NYSE:FIT) boils down to the hope that it can execute a difficult turn from being a product you want to something you must have.
FIT had a miserable 2016, with Fitbit stock falling from $30 per share to its current level of $7.61 per share. This happened even though sales this year are expected to be at least 15% better than last year’s $1.858 billion, and profits have grown steadily during the year, reaching $26.12 million, or 11 cents per share, in the September quarter.
Oh, and there’s still no debt on the balance sheet.
What happened? Fitbit devices were fashionable last year, but they have since gone out of fashion. The new models are being heavily discounted and there are supply concerns on the best ones. Reviewers who once swooned over a watch that could measure their heart health now say “meh.”
However, InvestorPlace’s own James Brumley says you should get out while you can.
Should you?
The Turn Is Difficult
Part of the argument for buying a Fitbit tracker has always been that a health monitor can save you money on healthcare costs.
Most healthcare costs are borne by employers, so this year many have been subsidizing Fitbit wearables for employees, enticing workers to use them with prizes for those who walk the most.
The potential savings are huge. Fitbit released a study in October stating that employees who opted in to wellness plans using its products had 25% lower healthcare costs than those who didn’t. That’s $1,300 per person.
A study released by the American Medical Association in October seemed to show different results, though. Young adults who were not especially overweight did not experience more weight loss with fitness trackers than without them.
The trackers need to be part of an integrated program to be effective.
Regardless, there are currently more than 200 other studies involving health trackers, and the results should be clearer by the end of 2017. My guess is that they’ll show trackers can help (in concert with other efforts) people to stay active and out of hospitals.
Carrots to Sticks
Employers and health insurers would very much like to capture any healthcare savings that these types of trackers can produce, which could lead many to forego the carrots for encouraging compliance and start using the sticks on those who don’t comply.
Fitbit is encouraging this through a new deal combining its fitness trackers with Medtronic PLC (NYSE:MDT) continuous glucose monitors, and has created an app called “iPro 2 myLog” that tracks how glucose levels respond to diet and exercise. The prevalence of diabetes has doubled since 1980, and 5 million American adults died from it in 2015.
Can You Make Me?
Some 86% of the national healthcare bill in 2010 went to treat chronic, preventable conditions such as diabetes and heart disease. Over half of U.S. adults don’t get enough exercise.
The argument for tracking health seems overwhelming.
Even big carrots could, in effect, make using trackers mandatory. There are also privacy concerns, though. Do you want your employer to know whether you’ve been working out? Those with unhealthy lifestyles were more likely to vote Republican this year, so resistance to better health habits is strong.
It may also be futile. The ability of employers, and health insurers, to discriminate against those with unhealthy habits (like smoking) is clear. Can they also do it regarding other risk factors such as overeating and a sedentary lifestyle?
Whether you think they can, many will, either covertly (with bigger carrots) or overtly (with sticks). It is the progress of this movement on which the fate of FIT depends. Bigger deals mandating tracking that get done in 2017 could have a powerful impact on Fitbit stock, which now sells for less than its annual sales, with a market-equaling price-to-earnings multiple of just 18.
If a big health insurer signs with FIT, then Fitbit stock will fly like it’s 2014, so it may be worth a small speculation.
Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.
