Fitbit’s (FIT) decision to go public was met with great fanfare, considering some analysts are valuing the market opportunity at $30 billion by 2020. Others, however, have not been so optimistic, citing waning growth from the lack of innovation in battery tech, inscrutably small interfaces and the social faux pas of looking like an idiot in public.
But shares of Fitbit stock have gained over 6% in the last five days alone, while the S&P 500 has barely nudged into positive territory for the same time period.
And since the company went public in June, shares have nearly doubled from the $20 IPO price … although they are currently sitting around 30% lower than the high of just over $50 hit in early August.
Is this mini-run the beginning of continued momentum for Fitbit stock, or will things cool off again in the near future?
Let’s take a look at three pros and cons.
Fitbit Stock Pros
Long-term Catalyst: The wearables mega-trend is often cited as the bull case for Fitbit stock, but many don’t realize that it goes beyond you and I tracking our steps each day. Wearables are expanding into the corporate realm, which means a huge market for Fitbit. Analyst Brad Erickson recently cited this long-term catalyst as bullish, writing: “investors remain overly concerned with competition, with corporate-wellness remaining the most underappreciated part of the story.”
Short-Term Catalyst: The corporate driver is promising and will likely play a large role in the 30% annualized earnings growth on tap for the next five years. But there are short-term catalysts in place for Fitbit stock too. For instance, the holiday season is right around the corner and could heat up the consumer side of sales.
Analyst Optimism: Analysts believe Fitbit stock will get back to its previous levels, with the consensus price target currently at $52 and the highest target sitting at $79. Estimates for earnings have been marching dramatically higher as well, with the consensus for this year going from 61 cents to 77 cents in the last three months.
Fitbit Stock Cons
Short Interest: Fitbit stock is a bit polarizing to stay the least. Despite the bullish targets and chatter, nearly half of the company’s shares are sold short. In the short term, good news could perhaps fuel a short squeeze. But on the other hand, it’s important to consider that all the bears may actually be on to something — and that sentiment could shift quite quickly.
Frothy Valuation: One thing the bears are likely honing in on is the fact that all the bullish arguments for Fitbit stock are arguably already priced in. The stock is trading for six times sales, 48 times trailing earnings and 38 times forward earnings — and that’s even after revised upward earnings forecasts and the aforementioned 30% drop from the previous high.
Low-Barrier to Entry: While Fitbit has the advantage of being an early mover in a crowded and growing market, it’s important to consider the fact that the tech world is fast-paced, full of competition and that even today’s biggest trend could turn to a fad tomorrow. There’s no such thing as a competitive moat in the tech gadget world.
Verdict on FIT Stock
While Fitbit stock is a bit frothy and popular with bears, the company boasts both short-term and long-term catalysts, strong earnings growth and improving sentiment among the analyst community.
Add it all up, and Fitbit stock could easily gain back the 30% that was shaved off in recent months, especially if the holiday season comes in strong.
Alyssa Oursler is based in San Francisco and writes about technology, investing, gender and entrepreneurship. Her work has appeared on Forbes, Business Insider, MSN Money and more. You can follow her on Twitter here or check out her personal site here. As of this writing, she did not hold a position in any of the aforementioned securities.