Fitbit Inc Still Has a Future of Growth, Disappointing Guidance Aside

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Results for Fitbit Inc (NYSE:FIT) definitely were not stupendous, and its guidance was certainly disappointing, but the company’s value proposition is improving. The future still looks very promising for Fitbit and FIT stock.

In September, I argued that Fitbit “looks poised to deliver the first device that’s a real monitor of multiple dimensions of people’s health.” During the recent earnings conference call, Fitbit CEO James Park revealed that the company had made more progress on that front. He noted that the company’s new Ionic smartwatch had been able to detect sleep apnea in early clinical trials. And when used in combination with Fitbit’s PurePulse heart rate tracker, Fitbit’s devices have shown the ability to “detect atrial fibrillation with 98% sensitivity and less than 1% false positive,” he said, noting that the condition “can lead to a fivefold increase in the risk of stroke.”

Moreover, Park indicated that the company’s devices would likely be able to detect additional health conditions in the future. “We believe our data gives our advanced research team… a clear advantage to develop algorithms and advanced sensors to detect…health conditions on a scale not previously available,” he said. Park added that the data “has the potential to help us detect more serious health conditions.”

The Ionic has been available at retailers for only a little more than a month. As consumers become more aware of the device’s ability to detect serious health conditions, and as the device is able to detect more health conditions, sales of Ionic should increase exponentially. The sales will push Fitbit’s profits and FIT stock higher. Additionally, given the device’s ability to reduce healthcare costs by enabling users to prevent serious illnesses before they occur, there is a good chance that health insurers and the government will look to subsidize purchases of the device.

There are signs of progress in other important areas. In my previous column, I pointed out that Fitbit’s new Coach app, which provides “access to videos that explain and show how to perform different exercises” (as I described it then), would provide an important point of differentiation with the Apple Inc. (NASDAQ:AAPL) Apple Watch. It appears that the app is indeed proving to be at least somewhat popular. Park reported that it had spurred a 75% year-over-year increase in the  number of customers accessing the company’s premium apps.

Although the company’s revenue from premium apps is still “immaterial,” according to Park, perhaps premium apps eventually will become an important contributor boosting FIT stock.

Moreover, the number of apps on Ionic looks set to significantly increase, as Park reported that over 1,400 developers have agreed to develop apps for the device. The addition of more and better apps to the device should greatly increase its appeal to consumers.

The FIT Stock Bottom Line

Finally, there are some reasons to be upbeat about the company’s Q3 results. They definitely showed significant improvement versus the previous quarter, as it sold 3.6 million devices, up from 3.4 million during the previous quarter and it reported a non-GAAP per share loss of just 1c, versus an 8c per share loss in the previous quarter.

Additionally, the company’s revenue from the Asia Pacific region jumped to $34 million  from $21 million in Q2, indicating that its devices may be becoming meaningfully more popular in that region. Meanwhile, China’s decision to prevent Apple Watch from using LTE connectivity in the country may give Fitbit a significant boost in the huge market.

Although Fitbit’s results and the recent performance of FIT stock have been disappointing, there are plenty of signs that Fitbit’s future remains bright. Longer term investors should take advantage of the recent pullback in FIT stock to buy more of this very promising company’s shares.

As of this writing, Larry Ramer owned shares of Fitbit.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.


Article printed from InvestorPlace Media, https://investorplace.com/2017/11/fit-stock-future-growth/.

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