Shares of Fitbit Inc (NYSE:FIT) might have already suffered a year’s worth of punishment, but don’t hold your breath waiting for FIT stock to rebound anytime soon. Despite the embattled fitness tracker maker reporting better-than-expected first-quarter financial results last month, there has been absolutely no credible bull case to suggest that Fitbit stock should trade higher.
And given that Apple Inc’s (NASDAQ:AAPL) dominance of the wearable tech industry has wiped out any chance FIT had to mount even a modest recovery, Fitbit stock investors should consider taking their losses and moving on to better prospects.
It is now clear that, despite FIT stock falling to all-time lows last week, these shares, which are broken both fundamentally and technically, can still fall another 40% to around $3.
Running Away From FIT Stock
The stock closed Friday at $5.15, down 3.2%; Fitbit stock has fallen 30% year-to-date and almost 65% over the past year, trailing the S&P 500 index in both spans. Notably, the stock performance includes a modest jump in FIT shares after the San Francisco-based company reported a beat on both the top and bottom lines for its fiscal first quarter. But as evidenced by recent sales trends by research firm International Data Corporation (IDC) that was the time to sell the shares.
For the first time in its history, Fitbit has fallen to third place among manufacturers of “smart” wearables in the most recent quarter. According to a hardware shipment report by IDC released last week, FIT fell behind both Apple and Chinese tech company Xiaomi.
Fitbit suffered a 38% year-over-year decline in first quarter shipments of 3 million, IDC reports. By contrast, Apple’s higher-end Apple Watch device enjoyed 64% surge in the same period. Notably, Fitbit’s decline comes as the overall wearables market grew by 18% to 24.7 million devices.
This suggests that consumers are moving away from cheaper devices with fewer functions towards smarter high-tech premium wearables that are multifunctional, or — in some cases — a fashion symbol.
To be sure, this does not mean FIT, which pioneered the wearable tracker market, will go extinct — a point made by IDC researcher Ramon Llamas: “Fitbit finds itself in the midst of a transformation as user tastes evolve from fitness bands to watches and other products.” While pointing to the company’s user base of 50 million, Llamas believes Fitbit is “well positioned to move into new segments and markets.”
That’s all well and good. But being “well positioned to move into new segments and markets” and executing in that direction are two different things. There’s also the question of how much time will Wall Street give Fitbit management to make that transition. Former high-flyers like BlackBerry Ltd (NASDAQ:BBRY) and Nokia Oyj (ADR) (NYSE:NOK), which lost their leadership position to Apple and Samsung Electronics (OTCMKTS:SSNLF) comes to mind.
While both BlackBerry and Nokia have since moved on to new markets like autonomous vehicles and networking, respectively, they’ve wallowed in obscurity for at least five years. The opportunity costs lost by investors in both companies during that five-year lull was painful. In the case of Fitbit, with Q1 revenue falling 41% year over year, while its fitness tracker devices sold declined 38%, it won’t have five years.
Its trackers are its bread-and-butter business, meaning that things are going to get much worse for FIT stock before they get better.
The Bottom Line for Fitbit Stock
Back in January when FIT shares traded above $7, I warned investors to stay away. A month later, after FIT stock declined 18%, I advised investors to remain cautious and move on.
It was clear then that although the smartwatch trend continues to disrupt the traditional watch market, prompting companies like Fossil Group Inc (NASDAQ:FOSL) to ramp up their own fitness trackers to win over tech-savvy Millennials, only Apple had figured out how to make money in the industry. The fact that device sales continue to fall at an accelerated pace, FIT stock will continue to fall and $3 could be reached sooner rather than later.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
