Fitbit Inc (NYSE:FIT) has been credited as one of the catalysts of the fitness tracking trend with its simplistic wristbands that encourage people to get up and get moving. The company quickly became a well-known brand that dominated the newly emerging market, but as big name players like Apple Inc. (NASDAQ:AAPL) began to integrate fitness tracking into their own wearables, FIT lost some of its luster.
Fast forward to 2017 and FIT stock is truly struggling. Shares of Fitbit stock are down nearly 20% so far this year as investors continue to abandon the company amid worries that the bands are about to go the way of the dodo.
Last year, FIT clung on to the hope that there was still demand for standalone fitness tracking wearables, but the Apple Watch’s health-heavy update coupled with evidence that consumers are losing interest in wearable tech has weighed on investors’ confidence.
Heading into its earnings report on Wednesday, February 22, Fitbit has a lot to prove. The overall picture is looking pretty grim, which reinforces the case for why the stock should be avoided at all costs. With that in mind, here are three things potential FIT stock investors need to consider.
Three Reasons Fitbit Stock Should Be Avoided
Losing Money Quickly
One of Fitbit’s biggest assets is the company’s stable balance sheet. With no long-term debt and $3 worth of cash per share, FIT is standing on pretty solid ground despite it’s woes. However, while the company’s relatively secure financials have been able to support the company as it tries regain momentum, that cash won’t last forever.
During last year’s holiday quarter, Fitbit not only performed terribly, but the company also lost a lot of money trying to slash prices and entice customers. Margins declined and the company still didn’t see its sales improve in a meaningful way. This is a bad sign for the future of Fitbit stock and suggests that the firm’s wristbands are a dying fad.
Wearables Are Tanking
Not only does Fitbit have to compete with the likes of Apple in order to sell its wristbands, but the company is competing for a share in a rapidly shrinking market. While they were all the rage when they first hit the market, wearables appear to be losing steam quickly as consumers move on to the next big thing.
Reports show that the wearables market is shrinking. The market gained just 3.1% in the third quarter of 2016, a 219.7% decline from the previous year’s growth figures. This is troubling for anyone flogging a smartwatch or fitness tracker, but particularly for Fitbit, whose entire brand revolves around the use of wearables.
Trust Is Lost
There is a case to be made for the wearables market when it comes to corporate wellness and the introduction of fitness trackers to lower health insurance costs. However, Fitbit may not have a place in this emerging segment of the fitness wearables market due to consumers’ trust issues with the firm.
In 2016, Fitbit found its heart-rate trackers at the center of a class-action lawsuit claiming that the devices aren’t accurate. The lawsuit refers specifically to Fitbit’s heart rate monitors, but it has drawn attention to the product as a whole, and not in a good way. This is bad news for FIT stock because the company will struggle to convince customers who are on the fence about adopting wearable fitness technology if its accuracy is questionable.
The Bottom Line on FIT Stock
There’s no question that Fitbit stock has become insanely cheap over the last year, but that doesn’t mean investors should rush out to buy it. There is hope for FIT in the future if the company is able to make its way into the corporate wellness space or if it can find a way to grow abroad and the firm does have enough cash to bankroll another strategy shift.
However, Fitbit stock is treading on thin ice and the way the wearables market is heading doesn’t look good for the firm’s future. Investors who decide to buy FIT stock now have a strong stomach for risk, because adding it to your portfolio is essentially like heading out to the casino.
As of this writing, Laura Hoy was long AAPL.