I’ll be honest … I don’t love Fitbit Inc (FIT) as a product. I bought my wife a Fitbit for Valentine’s Day and it has had several problems from the get-go — the time is often wrong, the tracker won’t update, etc. So, I’ve never given Fitbit stock much of a chance personally.
One look at the FIT stock chart tells me I’m not alone.
Things started well for FIT after it debuted on the New York Stock Exchange last June. It came public at $20 and rose to $51 in less than two months.
But the honeymoon for Fitbit stock ended abruptly — and decisively. By September, it had sunk down to $31; by November it had dipped below $27 and after a brief run back to $34, FIT nosedived all the way to $12 this February.
Now trading at roughly $14, is there any hope for Fitbit?
Fitbit Stock Not Getting a Boost From Growth
The sales and earnings growth suggest that there is hope. In its last four quarters, FIT’s sales have grown 252%, 168%, 92% and 50%, in that order. For full-year 2016, sales are expected to increase 38%.
Earnings have been more up and down, but the company is profitable, which is more than most young tech companies can say. And Fitbit’s earnings per share have routinely been much higher than analysts expect, beating consensus estimates by an average of 144% in the four quarters since the company went public.
Wearable tech is certainly a huge growth industry, and Fitbit owns the largest share of that budding market; it moved the most devices globally in 2015, beating out Apple Inc.‘s (AAPL) Apple Watch with ease. In the first quarter of this year, Fitbit sold 4.8 million devices.
That’s the good news. The bad news is that the company just lowered second-quarter EPS guidance by a significant margin, from $0.26 to a range of $0.08 to $0.11, though full-year sales and earnings guidance were both better than most analysts forecast.
Furthermore, while Fitbit’s sales are still growing, its leadership position in the wearable-device market is dwindling. It now owns 25% of the wearable market, down from 32.6% a year ago, which was before Apple released the Watch. During that year, Apple’s wearable market share has gone from zero to 7.5%.
Clearly, the Watch is an emerging threat to Fitbit.
That brings me to my biggest concern about Fitbit: Unlike Apple, it’s a bit of a one-trick pony.
You can buy Fitbits in different sizes and colors, and some (like the Alta and Blaze) perform more functions than others (namely, the Charge); but in the end, they’re all digital bracelets of some sort that you strap on your wrist to monitor your steps, sleep, heart rate, etc.
Long-term, the company will need to innovate more and expand its product offerings to remain relevant. Fortunately, it appears to be doing just that. The company looks to be entering the lucrative mobile payments space, having just purchased wearable payments assets from a struggling start-up called Coin.
Specifically, those assets will give Fitbit mobile wallet capabilities that could be embedded into future devices, though the company said that wouldn’t happen this year.
Who knows how much demand there is for a mobile wallet on your wrist? At the very least, though, the Coin acquisition shows that Fitbit is willing to think outside the box and diversify.
FIT Stock Not a Buy … Yet
That bodes well for the future of the company, and the stock. In the short-term, Fitbit stock doesn’t look good: Save for a brief period in April, FIT stock has been trading below its 50-day moving average since last fall.
And every time it looks like the stock has found a bottom — such as after its lockup agreements expired last November and it appeared the worst of the selling was behind it — FIT manages to sink to even greater depths.
Given those recent letdowns, I cannot recommend buying Fitbit stock now, especially if you’re looking for quick growth.
However, when the stock breaks above that 50-day moving average — currently in the $15 range, or $2 higher than the stock price — that might be a good time to buy. Fitbit has the makings of a good stock: strong sales growth projections, a leadership position in a booming industry and it trades at roughly 10 times next year’s earnings estimates.
But Fitbit stock just hasn’t cooperated yet. Until it shows signs of doing so, I’d leave it alone. Like my wife’s Fitbit, FIT stock has been broken almost from the beginning.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.