The going has not been easy for Fitbit Inc (NYSE:FIT). When the company went public in 2015, it was profitable and growing sales at an impressive rate. This is atypical of a newly public company, which is why shares quickly shot up toward $50, more than double its IPO price of $20. However, FIT stock has faltered since, now trading just above $5. Is it a buy now, especially with the recent news about Apple Inc. (NASDAQ:AAPL)?
According to reports, Apple held talks with health insurer Aetna Inc (NYSE:AET) regarding its Apple Watch. Right now the company is testing the devices with some of its employees as part of a wellness program.
While Aetna has close to 50,000 employees, the real money lies with Aetna’s customers.
Aetna has just over 23 million members in its network. While the company is only in talks with Apple at this point, the discussions did involve providing its customers with free or discounted access to the Apple Watch.
What About Fitbit?
When I read about this news, I couldn’t help but think of FIT. These types of deals were what CEO James Park used to talk about all the time in various interviews. How partnering with health insurance companies could be a massive driver of sales. Partnering with corporations to provide Fitbit devices for employees could be a big help, too.
The argument: Corporations providing employees with the device will encourage them to be healthier. In turn, this should lower the health insurance burden that companies provide for their employees and save them money. The company saves money, the employees are healthier and Fitbit gains sales. It was a win-win-win.
With an insurance company, I think FIT and Apple make the same argument. One could argue that a healthier customer drives less money for the insurance company. Particularly if it results in a lower premium for the now-healthier customer, (saving on premiums could be a bigger incentive than health for some). Conversely, lower healthcare costs could benefit the insurer as well.
There are a lot of moving parts to calculating how insurance companies benefit from providing fitness and medical devices. However, I don’t suspect it will negatively impact Aetna if it’s seriously considering such a deal with Apple. Is it possible that an Aetna-Apple deal involving customers allows for the same “win-win-win” scenario?
If so, one could make a serious argument for owning Fitbit. Taking it a step further, one could even see where an Aetna-Apple deal is a win for Fitbit. How so? Even though Aetna would have first-mover advantage, it leaves dozens (hundreds?) of deals still on the table. If other health insurers and corporations see the benefits laid out by Apple and Aetna, perhaps they too will jump on board. It’s impractical to think Apple would land every deal. That’s how this can be a big win for Fitbit.
Bottom Line on FIT Stock
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FIT stock has been a very disappointing holding. However, it has been basing between $5 and $6 for most of 2017. For investors who want to take a chance on Fitbit, they could do so with a stop-loss just below the 52-week low of $4.90.
Obviously all is not well, otherwise FIT stock wouldn’t be trading this low. Revenue is forecast to fall 25% this year and losses of 12 cents per share last year should grow to a 31-cent-per-share loss this year.
However, those losses are expected to fall in 2018 and sales are expected to grow about 8% next year. In other words, while the situation isn’t great at Fitbit, we may be near a bottom.
While business has been rocky for FIT, demand out of China and EMEA was solid last quarter. The company’s flat earnings for the quarter came in 15 cents per share ahead of estimates. Fortunately, Fitbit doesn’t carry any debt either. So while the top and bottom lines may fluctuate, at least investors can take comfort in knowing that Fitbit doesn’t have a big debt cloud looming.
This isn’t a blue-chip stock with a juicy dividend. But it’s a higher-risk turnaround story some may want to bet on. If FIT stock is in the news for a rumored deal like Apple and Aetna, its shares should rally.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, he did not hold a position in any of the aforementioned securities.
