Fitbit Inc (FIT) Stock Could Get a Burst of New Life If This Happens

Everybody hates Fitbit Inc (NYSE:FIT). Well, not everybody hates its product — I just got my third FIT watch — but a lot of people hate Fitbit stock.

Fitbit Inc (FIT) Stock Could Get a Burst of New Life If This Happens

My first FIT watch succumbed to a cheap wristband. My second died because it would no longer recharge. My third, a Charge 2 HR, arrived last week.

The reason analysts suddenly hate Fitbit stock is the company’s own forecast from a month ago, that it has run through most of its addressable market, which made analysts decide wearables are just a fad.

The company is “done,” is the way Jim Cramer summed it up, and 39-year old CEO James Park has “lost any credibility.” In the last month, almost half of the company’s analysts have downgraded FIT stock and now most call it a weak hold.

But is Fitbit stock really done, and is the wearables thing just a fad? It’s time to consider the bull case.

The Bull Case for FIT Stock

Based on its opening price of $8.45 on Dec. 2, Fitbit stock was selling for about one year’s sales and 20 times earnings. The company has no debt, and until recently it had positive cash flow. It more than doubled its sales in fiscal 2015 and, if Christmas is any good at all, FIT should beat last year’s revenue this year as well.

FIT stock now faces a host of competitors, but none are doing much better. Even the Apple Inc. (NASDAQ:AAPL) Watch is now considered a dud.

Despite all the analyst downgrades for Fitbit stock and the assumption that wearables are dead, the watches are flying off shelves, although pricing is said to be weak. (I got my FIT watch for about 15% off the initial retail price.)

With the whole sector stumbling, Fitbit is consolidating it, picking up rival Pebble for no more than what that company had collectively received through Kickstarter. Pebble appears to be a purchase of intellectual property, not of a going concern.

Fitbit Is Going From a Want to a Need

The case for wearables was never based on fashion. It was based on the needs of an aging America.

Wearables are about to go through a transition, from something you want to have to something you’re told to own. I had a Pebble for a while because it integrated with the fitness systems at my local YMCA. Fitbit has been selling its products to corporations as a wellness product, a way for employers to reduce health care costs.

The Pebble acquisition is all about this movement, although the impact of fitness trackers on corporate health insurance rates is still unproven. But there are positive indications. Springbuk recently found that those who opted-in to using fitness trackers at one employer wound up saving the company almost $1,300 per year each, even when the cost of the wellness program was factored in.

Most people on health insurance still get it through their employers, which continue to face rising rates for coverage. The cost of government-run programs like Medicare, Medicaid and Veterans care is also going up, and wellness programs appear to be a cost-effective solution for holding a lid on those costs. FIT products are still getting strong reviews and the company is considered the category leader.

The Bottom Line on Fitbit Stock

The next step for this industry is creating some sort of compulsion for wellness. This can be done through employers offering discounts on insurance rates to employees who submit to wellness programs, based on more studies proving the efficacy of wellness programs in reducing health care costs.

In the near-term FIT stock seems to have bottomed out and by any conventional analysis its valuation is now reasonable.

I believe that the next charge up in this category, if it comes, will be from large accounts purchasing bands in quantity and using carrots or sticks to push people into using them as part of a corporate wellness program. It won’t be pretty, but it could be effective for Fitibit stock.

FIT stock is leaving the candy phase of its growth, and entering the castor oil phase. If anyone is about to buy this company, it’s going to be a health insurer like UnitedHealth Group Inc (NYSE:UNH).

Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AAPL.

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