Let me be blunt right from the beginning — Fitbit Inc (NYSE:FIT) is a bigly disappointment. Even Press Secretary Sean Spicer couldn’t talk his way out of the ugliness of FIT stock. Year-to-date, Fitbit shares are down 24% in the markets. Obviously, that means that the company has to have a stellar run from here on out just to break even!
To many folks (including me), it wasn’t supposed to be like this. FIT stock was a breath of fresh air for a whole number of reasons.
You can start with the leadership. Fitbit CEO James Park doesn’t fit the mold of your typical Wall Street boss, and I think that’s great! He seems to really care about his organization, and how he can return value for FIT stock investors. Apparently, he has yet to finish his degree at Harvard College, so he’s not an education snob, either.
That quirkiness and lively “can-do” personality is evident in FIT products. For example, rather than naming their products with generic, alphanumerical codes, Fitbit dug a little deeper in the creative department. Offerings such as “Alta,” “Charge” and “Surge” are self-defined and help clarify what their mission purpose is. These attributes also contributed to memorable marketing campaigns — a big plus for Fitbit stock.
Sales Decline Truly Hurt FIT Stock
Of course, things almost always work better in your head. And while the fundamentals were supportive of FIT stock, the markets had their own say.
The biggest impediment to Fitbit stock is sales. Simply put, FIT is no longer the toast of Wall Street. Back in 2012, for instance, the company registered $76 million in sales. A year later, that figure jumped to $271 million, or a near-257% gain. Most remarkable of all, it only took two years from there to hit the billion-dollar benchmark. When it did so, it was threatening $2 billion, not $1 billion.
But in fiscal 2016, FIT stock could only muster less than $2.2 billion in revenue. Against the banner year of 2015, that’s only a 17% gain. But sales growth between 2013 and the end of 2015 averaged almost 200%. You can see the day-and-night dichotomy here. And if you can see it, so too can the professional traders and hedge fund managers.
The problem wasn’t just limited to a one-off occurrence. Sometimes, the markets are charitable, or at least forgiving. The issue became what was at stake. Fitbit products began looking awfully commoditized, which was the kiss of death for GoPro Inc (NASDAQ:GPRO).
Not wanting to repeat that mistake, investors quickly dumped out of Fitbit stock.
I can understand their concerns, but here’s a thought: if Fitbit is commoditized, aren’t all consumer electronic companies like Apple Inc. (NASDAQ:AAPL), Sony Corp (ADR) (NYSE:SNE), and Samsung Electronic (OTCMKTS:SSNLF) also commoditized?
The point is not whether commoditization is occurring — it is. Rather, it’s the potential for future business. And this is why I’m still bullish on FIT stock.
Potential Demand for Fitbit Products Is Huge!
In a previous article about Fitbit stock, I mentioned that Americans love their gym memberships.
Good times or bad, we head to fitness centers across the country. Logically, we can deduce that people will also open their wallets for fitness-related accessories. That’s a net positive for FIT stock, no matter how you cut it.
Still, the gym membership factor only considers those who are currently involved in fitness regiments. Outside of that group lies an enormous pool of potential Fitbit customers. According to the President’s Council on Fitness, Sports & Nutrition, “Less than 5% of adults participate in 30 minutes of physical activity each day.” Furthermore, “only one in three adults receive the recommended amount of physical activity each week.”
In other words, FIT stock may be levered to a commoditized product, but there is great demand for it. After all, fitness is the cheapest and most effective way to promote healthy living and reduce overall healthcare costs. If more education about fitness concerns proliferate, the debate about “Obamacare” may finally simmer down.
Finally, what makes Fitbit stock stand out at this juncture is the economy. It’s not as great as President Donald Trump wants it to be, but it’s getting there. If people were already spending money on gym memberships when the economy was pedestrian, imagine what they may do as it improves.
You can’t necessarily make the same argument about other consumer electronic devices. Nobody needs to have another camera, or the latest smartphone. But humans absolutely need at least a modicum of physical activity. Fitbit devices helps people achieve their personal fitness goals, and the current environment is quite conducive. Therefore, I see good things ahead for FIT stock.
As of this writing, Josh Enomoto was long SNE stock.