Fitbit Inc (FIT) Stock Is the New BlackBerry

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Wearable activity trackers were all the rage a few years ago and Fitbit Inc (NYSE:FIT) was the number one name in the industry. Fast forward to 2017, and consumers have done an about-face, sending FIT stock more than 60% lower over the past year.

Fitbit Inc (FIT) Stock Is the New BlackBerry

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Sound familiar? It should.

BlackBerry Ltd (NASDAQ:BBRY) suffered a similar fate when its popular handsets were abandoned for touch-screen smartphones. Ten years ago, BBRY investors were holding on to a $200-plus stock, but now the firm’s shares trade for a measly $9.89.

Fitbit stock is in the process of a slow and painful death, and investors that are still holding on to shares are in for an unpleasant ride. Much like BBRY, Fitbit has fallen behind its peers and its products are falling out of favor with consumers.

Sure, the firm is promising to turn out cutting-edge products and create new revenue streams, but I believe that those claims are too little, too late.

Watches, Not Bands

The biggest problem for FIT stock has been the fact that the company’s fitness bands compete against devices that can do everything a Fitbit can do, but better, and with a slew of extra features.

In 2015, Apple Inc. (NASDAQ:AAPL) released its first smartwatch, that’s when Fitbit should have begun working on its own, comparable smartwatch. Instead. the company rolled out more fitness tracking bands and now it’s suffering because of that decision.

There have been murmurs about a Fitbit smartwatch over the past few months, but nothing concrete and certainly no details about the kind of functionality it will have. Even if the company can turn out a really amazing watch, it’s unlikely to pull consumers away from Android and Apple devices. Fitbit is simply too late in the game to make a real difference.

Not only that, but Fitbit’s plans to create its own app store are laughable as well. The majority of consumers have committed to either the Android or the Apple ecosystem, so there’s not a lot of space for a small company like Fitbit to break in.

Expensive Gamble

Not only is Fitbit going to struggle to take even a sliver of the smartwatch marketshare away from a company like Apple, but the firm’s efforts will take a massive toll on its finances. Fitbit has to spend a lot of money in order to develop and build new products. If those products don’t sell, the financial consequences are huge.

FIT stock investors should know, because the company faced that problem last year. Fitbit had a great deal of excess inventory last year when its new devices didn’t sell the way the firm had expected. The costs associated with new bands’ flop came to around $160 million, which reduced the Fitbit’s growth margin significantly.

If the firm comes out with a smartwatch, I wouldn’t be surprised to see a similar pattern.

Not a Bargain

Sometimes beaten down stocks are worth picking up even if the company itself isn’t all that impressive. I believe that’s the case with Rite Aid Corporation (NYSE:RAD) stock now, and that it was the case for Volkswagen AG (ADR) (OTCMKTS:VLKPY) back when the firm’s emissions scandal was revealed.

But in the case of FIT stock, the decline is justified and it’s unlikely to improve in the foreseeable future.

What’s Next

I don’t think Fitbit is going under anytime soon. Instead, I am expecting to see FIT stock drag on trading below $6 per share for the next year.

There has been some chatter about FIT stock being acquired, an argument that is really the only reason I’d expect a sane investor to add the company to their portfolio.

While FIT could become a takeover target for a bigger tech firm, that scenario is far from certain and makes for a very risky investment strategy.

As of this writing, Laura Hoy was long RAD and AAPL stock.

Marie Brodbeck has a Finance degree from Duquesne University and has been a financial journalist for more than a decade. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/fit-stock-is-the-new-blackberry/.

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