When a greater number of investors think a business is doomed, then the stock is likely to tank — that’s just how the stock market works. But what happens when the consensus sentiment is wrong? Case in point, Fitbit Inc (NYSE:FIT), the fitness tracker and wearable company, has no doubt seen more downs than ups over the past year. But investors have left FIT stock for dead even though it is very much alive — perhaps more so than ever.
Even the almighty Apple Inc. (NASDAQ:AAPL) reported its fair share of poor earnings, which called into question the long-term investment thesis.
For example, Apple stock was punished after the company’s Q3 report in 2008 and some Wall Street analysts were even throwing in the towel after AAPL stock lost one third of its value in just one month.
It would have been a mistake not to buy AAPL stock at that point — just like it may be a mistake not to buy Fitbit stock today.
FIT Stock Is No Bear Trap
I came across a great piece by fellow InvestorPlace contributor Tom Taulli, who raised some great points to support the case against owning Fitbit stock. I suppose we would agree to disagree on FIT stock, and I would like to give readers the other side of the trade.
For starters, Taulli’s report makes note of the most recent IDC report on wearables. But absent from Taulli’s report was IDC’s claim that Fitbit not only “maintained its dominance” in the fourth, but held onto its ranking as the market leader for both the quarter and the year. In fact, Fitbit shipped more units and commanded a greater market share than each of its competitors.
Moreover, Taulli suggested that FIT stock hasn’t taken advantage of international growth to the extent its peers have. However, as the company noted in its preliminary Q4 report, revenue from rapidly growing markets like EMEA rose 58%.
Granted, Taulli accurately pointed out that Fitbit stock is shedding market share, but it is merely speculative at this point if the trend will continue, especially as the company has a solid game plan moving forward.
Yes There Is a Turnaround Plan for FIT
Taulli concluded in his report that FIT stock is unlikely to move higher as the company doesn’t have a clear turnaround strategy. The fact is the company has a very clear turnaround strategy to generate new revenue streams and explore new markets.
First, Fitbit needs to monetize its massive platform, which as of the end of the most recent quarter stood at 23.2 million users (using 50.2 million devices), up 37% year-over-year. FIT’s CEO James Park explained during the company’s fourth-quarter conference call that it is in the early stages of investing in a new software and services revenue stream. So far, the relaunched Fitstar Personal Trainer app ($7.99 a month or $39.99 a year) is a top-10 app in the iTunes health and fitness section in terms of dollars.
Another way FIT is looking to create new revenue streams is by expanding into the adjacent market of fashionable (not fitness tracking) smartwatches. In fact, IDC said in its report that “hybrid watches and other fashion accessories with fitness tracking are starting to gain traction.”
Park even addressed this point during the Q4 conference call. The executive said the company is prepared to enter the fashion-related market in which it can sell watches at a higher average selling price. And the best part of this is that the adjacent market can more than double its current market size.
Moreover, recent acquisitions of certain assets from Pebble, Vector Watch and Coin makes it a formidable player in a completely new market by default.
But wait there’s more. Check out Fitbit’s plan to gain traction in the healthcare market:
“On the digital health side, we added key partnerships with leading companies including Medtronic, an integration with one of the largest U.S. health plans demonstrating the early potential of our devices in different healthcare settings. We started to see the positive impact of Fitbit Group’s health programs resulting in cost savings and positive health outcomes for employers and organizations.”
The Bottom Line on Fitbit Stock
FIT stock has a very real turnaround plan that addresses all of the biggest factors plaguing the company. New revenue streams? Check. New segments? Check. A more lean, re-sized company? Check.
Perhaps most important to investors: A stock that has fallen out of favor and poised to grow over the years? (Hopefully) check.
Also, as the market continues to trade near all-time highs, there is the possibility that many investors will look to cash in their profits and look for turnaround stories to invest in. If anything, Fitbit stock is the ideal candidate.
As of this writing, Jayson Derrick holds a 150 share position in Fitbit.
