Fitbit (FIT) stock has been crushed in the month of November, down 30%. It’s falling again on Friday, Nov. 13 after Fossil (FOSL) acquired its competitor Misfit. In response to this news, FIT fell below its initial offering price, presenting what could be a buying opportunity for investors with the intestinal fortitude.
Fitbit stock is selling off because investors are apparently worried about the competitive threat of Fossil after its Misfit acquisition.
Fossil bought Misfit for $260 million and plans to scale its technology across Fossil’s 16 brands in 2016 to accelerate FOSL’s connected wearables road map.
Therefore, Fitbit investors are worried Fossil could become a bigger threat in the basic wearables space.
A Misconception About Fossil Buying Misfit
With that said, Fossil acquiring Misfit and the general notion that Fossil is a legitimate threat should be taken with a grain of salt. Fossil is a fashion watch designer, not really known for its portfolio of fitness trackers.
This is a company that was one of Google’s very first partners with Android Wear, but Fossil has failed to adopt smart technology on a large scale. The lack of innovation and an inability to scale new technology explains why FOSL stock is crashing 30% after its third-quarter earnings revealed revenue in a 14% downfall year-over-year.
As a result, the move to acquire Misfit seems more about self-preservation than competitive threat to FIT. The problem for Fossil is that Misfit isn’t all that relevant in the wearables marketplace. The IDC pegs Fitbit’s second-quarter market share of the wearables industry at 24.3%.
Given the fact that Fitbit sold 4.8 million units in the third quarter vs. 4.5 million in the second quarter, there’s a good chance that its market share has risen even more.
Meanwhile, Misfit’s market share isn’t even listed by IDC, meaning it controls less than 4% of the market. Probably far less.
As a result, investors shouldn’t consider Fossil’s acquisition of Misfit a risk to Fitbit stock — but rather, the pairing of a troubled company with an irrelevant one.
Fitbit Stock Continues to Defy Odds
All things considered, Fitbit has weathered some fairly significant storms over the last year and yet remains stronger than ever today.
It had to deal with the launch of Android Wear last year, wearables by Nike, and of course, the Apple Watch in Q2. Yet, Fitbit’s guidance for full-year revenue of $1.8 billion is $400 million more than analysts had expected just four months prior.
Investors fail to embrace this performance, however, neglecting to account for Fitbit’s triumph over steep competition all the while exceeding even the most bullish of expectations.
While Fitbit’s revenue won’t continue to grow 150% annually, analysts still expect a compound annualized growth rate of 24.5% through 2019 in a basic wearables market that FIT essentially owns.
Therefore, with Fitbit stock now trading at just 25 times next year’s earnings, and having great long-term growth prospects ahead, one must figure that FIT stock is a great investment opportunity behind its recent fall.
As of this writing, Brian Nichols did not hold a position in any of the aforementioned securities.
