Ah, what can you say about Fitbit Inc (NYSE:FIT) that hasn’t already been said? Fitbit stock was one of the ugliest investments in consumer technology last year, shedding more than 75% in the markets. To put this into perspective, GoPro Inc (NASDAQ:GPRO) lost 53% in 2016 — and people really hate GoPro!
Although FIT stock is a different story, it’s hard not to make the comparison with GPRO. For starters, both companies found early success attracting a niche, but strong consumer base.
In fact, I hesitate to use the term “niche” because that implies something painfully boring like watching men’s curling. Instead, their respective products are innovative, utilitarian and just downright cool. Wall Street thought the same thing and pumped the price of Fitbit stock aggressively.
Unfortunately, that was nearly two years ago. Among tech circles, that’s about a decade. Since then, FIT stock has been a disappointment to put it mildly. A respite occurred between late February to late October of last year. During that time, Fitbit stock was volatile, but kept within the boundaries of a horizontal trend channel. It was then that I mistakenly thought that the company could lick its wounds and start a new leg.
Click to Enlarge
Should Investors Dump FIT Stock?
Of course, the logical advice is to cut tail and run. This is the recommended course of action for GoPro, and by deduction, FIT stock. The core complaint about both companies — copycat competitors — will eventually devalue the firms as mere commoditized assets. For example, Fitbit faces pressure from Apple Inc. (NASDAQ:AAPL) much in the same way that GoPro is challenged by Sony Corp (ADR) (NYSE:SNE).
The worry here is that these two giants have the collective capital to make things uncomfortable for the upstarts. This plays into the concerns that there are no recurring opportunities once the initial sale is transacted. GoPro is forecasted to incur negative cash flow, which isn’t surprising. How many action cameras does the average person need? Likewise, how many fitness trackers are necessary? That’s the question that FIT stock will have to address convincingly.
Even if Fitbit stock can find the answer to top-line growth, the dark cloud of market saturation hangs ominously. Overeating and obesity is an alarming problem in this country. Worse yet, it appears that several parents are passing off bad dietary habits to their children. Some might conclude that health and fitness concerns are not priorities for most Americans. If that’s the case, the fitness market will get saturated quickly — basically, kiss FIT stock goodbye!
Fitbit Stock Isn’t As Bad As You Think!
That’s some of the bad news and I totally understand why folks won’t want to stick around. But among the rattled consumer tech stocks, I give FIT stock a solid chance of successfully recovering.
Primarily, the reason to own Fitbit products is self-evident — we eat too damn much! We’re stuck in the cubicles smashing away at spreadsheets and word processors. We don’t engage with our fellow human beings unless it is through a digitalized platform. Quite frankly, we don’t get much sunlight. Our nation is “The Walking Dead,” but we don’t realize it.
I also fundamentally disagree that Fitbit stock is a commoditized investment, and that it’s facing a shrinking market. Look at the producer price index for sporting and athletic goods. In two years, it has jumped 8%. So even though we have an obesity problem, the PPI demonstrates that Americans do care about their health. If they didn’t, the PPI goes down — simple economics 101.
Here’s a statistic that’s hardly ever raised. Roughly speaking, Americans make up 5% of the world’s population. However, our health and fitness clubs make up 19% of total fitness centers worldwide. Additionally, we have 55 million members who are signed up at a gym, which is 36% of the global gym member population.
When analysts propose the argument that FIT is commoditized, they’re saying that the company can be undone by low-price leaders. That may be true initially, but what about the long run? Because the available data suggests the opposite story. More people are willing to spend their discretionary item specifically for health and wellness reasons. That’s the compelling backdrop that Fitbit stock carries that others do not.
As of this writing, Josh Enomoto was long SNE.
