These are dark days for fitness tracking company Fitbit Inc (NYSE:FIT). Fitbit stock has been following a downward trajectory for the last two years and with the stock trading at just under $6 per share, things aren’t looking great.
Sure, the company’s activity trackers are still garnering some interest from consumers and yes, the company is doing its best to continue expanding, but it’s only a matter of time before investors give up on FIT stock completely.
I love to buy an underdog stock. There is nothing better than buying a stock with a price-to-earnings ratio that has taken a hammering due to market overreaction, but unfortunately for Fitbit stock, this is not the case. FIT stock is low for a reason — the firm has a weak core business model that simply can’t hold up against stiff competition in the years to come.
While some investors are still willing to bet on Fitbit stock, I’d argue that such a move is a terrible idea, and here are three reasons why.
FIT Stock: Lacking Diversity
Fitbit sells fitness trackers — period, end of story. The company’s promises to diversify by creating an app ecosystem that will tie in with Fitstar and Fitbit premium are weak at best. The firm is behind when it comes to these kinds of memberships and companies like Garmin Ltd. (NASDAQ:GRMN) and Android are already miles ahead with much more established app stores that connect to their own devices in this sector.
FIT stock bulls point to the fact that the company reported a 37% rise in active users at the end of 2016 as proof that the firm is in fact growing its digital offerings. However, Fitbit management has also said that revenue from its subscription-based services contributed less than 1% to its top line. That’s not nearly enough to be considered a viable way for the company to turn itself around.
Fitbit: New Products Aren’t Enough
When Fitbit first came on the scene, the company was offering a unique product that people were excited about. However, worries about accuracy coupled with an increasingly crowded wearables market has taken much of the shine off of FIT’s products.
In 2016, Fitbit attempted to make a place for itself in the smartwatch space with Blaze, but the product fell flat as consumers failed to see the value in a watch that did far less than Apple Inc.’s (NASDAQ:AAPL) watch, but carried a very similar price tag.
This year, FIT is going back to what it does best with a new updated fitness tracker called the Fitbit Alta HR. The new model is supposed to have superior technology to track things like heart rate and sleep within a more streamlined device, but it remains to be seen whether it will be enough to draw consumers back in.
While the new gadget claims to have all the bells and whistles, at its core, its not much different than FIT’s other products. Nor does it boast much of an advantage over other competitors’ wearables.
This Year Is Bad All the Way Around
Maybe you think Fitbit stock can turn itself around. Perhaps you believe that the company will be able to build a wildly successful digital ecosystem. These are possibilities, but they are very, very slim ones and they are unlikely to happen any time soon. FIT stock is probably going to fall further before making any kind of significant recovery — if it makes a recovery at all, that is.
Management has predicted a 30% decrease in revenue in 2017, so this year is not a good time to own Fitbit stock. Investors who foresee a recovery would be wise to wait until FIT’s transition period shows signs of gaining momentum before taking up a position.
Perhaps the only good reason to add Fitbit stock to your portfolio right now is the possibility that the company could become a takeover target. While it’s true that 2017 is expected to be a big year for M&A activity, FIT hasn’t been the subject of any credible takeover rumors and buying the stock for that reason alone is a very risky play.
Bottom Line on FIT Stock
Fitbit is struggling and investors who bought shares of FIT stock are struggling right alongside the firm. Fitbit stock is a very risky prospect at the moment and only those with a strong stomach for risk should pick it up. And even then, there are better buys out there.
As of this writing, Laura Hoy was long AAPL.
