It’s only a glimmer of hope right now, but Fitbit Inc (NYSE:FIT) is starting to get back on track. FIT stock is currently down roughly 3% in early morning trading after reporting earnings yesterday, but it’s important for investors to remember something before they jump the gun. The company has been innovating its product roadmap with increased discipline in its cost structure.
Despite the early morning fall, I still think there is a value opportunity here for patient investors.
FIT Stock: Earnings Breakdown
The adjusted loss was 1-cent-per-share and revenues came to $392.5 million. By comparison, the consensus estimate was for a 3 cent loss on FIT stock and revenues of $392 million.
As for the outlook for the full-year, the company is forecasting a loss of 27 cents to 23 cents-per-share and revenues of $1.62 billion and $1.65 billion. The Street, on the other hand, was looking for a loss of 31 cents and revenues $1.62 billion.
But again, the key is the progress with the product line. And the latest quarter does provide some encouraging metrics. For example, on a sequential basis, there was a 7% increase in device shipments to 3.6 million. This is an indication that FIT is finding ways to deal with the competitive threats from mega operators like Apple Inc. (NASDAQ:AAPL), Samsung Electronics and Xiaomi Inc.
During the quarter, FIT launched its Ionic smartwatch. It includes features like GPS tracking, heart-rate tracking, water resistance (up to 50 meters), a SpO2 sensor, contactless payments and battery life of over four days.
And in terms of customer traction, there are certainly positive signs for FIT stock. Note that the Ionic device has an average of 4.2 stars on Amazon.com, Inc.’s (NASDAQ:AMZN) website. This actually represents the best reception for any Fitbit product in its history.
The Ionic device is also attracting interest from third-party developers; 1,400 have already signed on to build apps for the platform.
Something else: The Fitbit Flyer wireless headset is also seeing robust demand. In the quarter, there was a 14% attach rate with Ionic purchases (this is from FIT’s website sales).
FIT and the Healthcare Opportunity
One of FIT stock’s biggest advantages is its database. There are 90 billion hours of heart rate data, 167 billion minutes of exercise information and 85 trillion steps. In other words, the FIT platform has the potential to allow for detecting health issues.
To this end, the company recently struck a deal with DexCom, Inc. (NASDAQ:DXCM), which is the leader in continuous glucose monitoring. The partnership will involve developing products to help people manage their diabetes, which is a disease that affects over 400 million people across the globe.
Next, the U.S. Food and Drug Administration’s (FDA) chose FIT as one of nine companies to be a part of a precertification pilot. By doing this, the company is likely to benefit from faster approvals.
Bottom Line on the FIT Stock Price
In terms of valuation, the FIT stock price is fairly cheap. Consider that the price-to-sales ratio is 0.8X. In fact, when you strip out the $659 million in cash, the multiple is a mere 0.45X.
But more importantly, the company looks poised to get a lift from its Ionic device, which could mean a strong holiday season for FIT stock. What’s more, in the meantime, there should be growth from the healthcare business.
Again, a rapid turnaround is probably not in the cards. But for investors with a long-term perspective on things, FIT could prove a profitable turnaround opportunity.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
