Fitbit Inc (NYSE:FIT) has long been a company that investment writers loved to hate.
The company’s fitness wristbands were inaccurate and broke easily. They were toys, said the detractors. The shares peaked at over $47 per share soon after the company went public in 2015. But they haven’t seen $10 since November of 2016.
A bad Christmas season report at the end of January sent the shares to around $6, but since September they have been on the up, opening for trade December 14 at about $7. They were helped by narrower operating losses in the September earnings report, and a nearly 50% cut in selling and general administration expenses, from almost $227 million in last year’s fourth quarter to $118 million in this year’s third.
What those cuts did was buy Fitbit another Christmas, and maybe enough time to find a new niche.
Fitbit As a Health Tracker
Instead of selling itself as a fitness tracker, CEO James Park now claims to offer health trackers, starting with the new Ionic watch.
The difference is that a fitness tracker is a consumer electronics device for the obsessive-compulsive athlete. A health tracker is a medical device your insurer or doctor may want you to have, and eventually may help pay for.
The new path is paved with the Trump administration’s good intentions, a new Food and Drug Administration precertification program that is more forgiving of errors, along with new technology that can help detect things like sleep apnea and heart arrhythmias.
This month, Fitbit has been clearing out its old inventory as fast as it can, and trying to hold the line on Ionic pricing. Amazon.com, Inc. (NASDAQ:AMZN) has it on sale at $269.95, but so does everyone else. Discounts on the older Blaze, Alta and Charge models are much steeper.
A Buyout Coming for Fitbit?
Other InvestorPlace writers have already noticed the change and suggested speculation might be warranted.
Josh Enomoto says the stock can still turn around. James Brumley suggests you put it on your watchlist. Lawrence Meyers still sees it as just a trade, but it’s a potentially profitable one.
What could really power the stock ahead are rumors of interest from Samsung Electronic (OTCMKTS:SSNLF), which has recently expressed interest in “digital health.” If Fitbit can monitor blood glucose levels, which it has promised for next year, it could draw more than one bid.
A bidding war, of course, is what Fitbit holders would most like to see in its Christmas stocking. Its current market cap of $1.66 billion is much lower than the trailing year’s revenues of $2.169 billion. If sales for this quarter hit $583 million, as expected, the company will have $1.66 billion in revenue for 2017, in line with that market cap.
But consider that Alphabet Inc (NASDAQ:GOOG,NASDAQ:GOOGL) paid $3.2 billion for Nest in 2014, which had $340 million in revenue the following year. If the health monitoring story looks like a winner, Samsung could easily bid $10 billion. That’s a little over five times sales, and you’re looking at a huge gain.
Bottom Line on Fitbit
Of course, as my late mother used to say, if wishes were horses, beggars would ride. A bidding war for Fitbit is unlikely. But even a partnership with a tech giant such as Samsung could boost the shares considerably, justifying speculation in the stock.
Before you buy, however, do some channel checks of your own — not just with area retailers but with your doctor. If he or she is interested in the Ionic, you may want to consider buying the stock.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.
