Fitbit Inc (FIT) stock hasn’t caught a whole lot of love from anyone recently, especially Mr. Market. But it is on the receiving end of a glowing initiation at Oppenheimer Tuesday.
The Wall Street research firm gave Fitbit stock an “outperform” rating, sticking it with a $25 price target — a figure that implied a whopping 50% upside to the FIT stock price, which sat at $16.71 at the close of trading yesterday.
Interestingly, shares of Fitbit initially surged on the news, only to give up all of their gains and then some. Shares of the wearable device maker are off nearly 3% as I write this.
Why are investors so anti-Fitbit? Is Oppenheimer onto something with Fitbit stock’s $25 price target?
FIT: Wearables Leader, But Market Laggard?
Oppenheimer’s rationale goes a little something like this:
“Fitbit is a leader in the wearables space as it sells devices and operates a global social fitness network. We see this market as just beginning.”
That’s a pretty strong endorsement, and it really should be sending the Fitbit stock price higher today. After all, Oppenheimer is a well-respected outfit — it’s not like the ambitious target came from the nobodies at Dingus Capital.
More importantly, Oppenheimer isn’t the only big-name research firm with lofty expectations for FIT stock. The following is a veritable who’s who of Wall Street sell-side research names, along with their price targets for Fitbit stock, and the date those price targets were given:
- Citigroup: “Buy,” $35 price target, Jan. 27
- RBC Capital Markets: “Outperform,” $28 price target, Jan. 25
- Raymond James: “Outperform,” no price target given, Jan. 21
- Stifel: “Buy,” $35 price target, Jan. 21
The fact that Fitbit is the new kid on the block, and that it’s fending off competition from Nike (NKE), Garmin (GRMN) and even Apple (AAPL) and Alphabet (GOOG, GOOGL) is wildly impressive. It had 79% of wearable activity trackers last year, according to The NPD Group, and analysts expect for sales to soar more than 140% in 2015.
And with Fitbit earnings for the holiday quarter set to be announced on Feb. 22, there’s a massive catalyst on the horizon as well. Yet investors can’t seem to stop thinking of Fitbit as a momentum-deprived underperformer. Sentiment, not reality, keeps driving Fitbit stock lower.
FIT stock is now down 45% from its day one closing price last June, and off nearly 70% from its all-time high of $51.90 set in August. At current levels, Fitbit stock trades at less than 15 times forward earnings, and its PEG ratio of 0.51 qualifies as insanely cheap by any traditional measure.
While some degree of market share loss is to be expected and should be built into the price, today’s valuation is insanely low.
Not only does Fitbit enjoy the benefits of the “network effect” (a sustainable competitive advantage enjoyed by companies with their own large, insular network of users that is extremely difficult to match), but it’s signing big-name corporate clients as wellness partners. Target (TGT) and Bank of America (BAC), two Fortune 500 companies, are among its many partners.
Personally, I’m strongly considering using this pullback as a buying opportunity.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
