I’ve gotten Fitbit (NYSE:FIT) stock very wrong for years, both as an investor and as a columnist. Since 2017, I’ve predicted in multiple columns that FIT stock would jump. Since 2016, I’ve bought a sizable amount of FIT stock at various price points, and the shares have tanked. The company’s recently announced deal with Singapore,however, could be the catalyst that redeems both me and Fitbit stock.
Over the years, I’ve thought that FIT stock would climb, driven partly by demand from insurers and employers who would look to use its devices to save money by making their clients and employees healthier through exercise. I also believed that FIT stock would be boosted by the increasing ability of its devices to detect disorders and diseases like sleep apnea, low blood glucose levels, and atrial fibrillation.
On the insurer and employer front, FIT expects to generate about $100 million of revenue this year. But that’s about 20% of what I thought it would be taking in from those sources by 2019. And it hasn’t announced any real meaningful health-monitoring achievements yet.
However, the Singapore deal shows that my positive thesis on FIT stock is alive and well. Here are four reasons why that’s the case.
Singapore Chose Fitbit’s Products to Boost Health
Singapore’s officials said they chose to distribute Fitbit’s products to citizens in an effort to “… encourage physical activity, healthy eating and better sleep quality among users.” The fact that a highly advanced,wealthy government — albeit the government of a small country — has faith in Fitbit’s ability to improve its citizens’ health shows that there are experts who believe in the positive impact of its devices.
That bodes very well for the company’s ability to convince insurers and other governments to make similar deals. And of course, more of these types of deals will lift Fitbit’s results and Fitbit stock.
Other Asian Countries Could Follow Singapore’s Lead
Singapore is a small country, but it’s culturally and geographically fairly close to many larger countries. That list includes Thailand, Vietnam,South Korea and, most importantly, China. If Singapore’s deal with Fitbit improves the health of its citizens and saves it money, other Asian countries are likely to make similar deals, boosting Fitbit’s results and meaningfully lifting FIT stock.
Fitbit Is in the Sweet Spot
Many Wall Street analysts and pundits have said there’s no way that Fitbit can compete against cheaper Chinese trackers on the one hand and Apple’s (NASDAQ:AAPL) Apple Watch on the other. But for a long time, I’ve contended that FIT is in a sweet spot because its devices are much cheaper than those of Apple yet have a much better reputation — and probably are much better made — than the Chinese devices.
Singapore reported that it had considered devices from multiple companies before choosing FIT, and Fitbit CEO James Park said that Apple was one of the competitors that it beat for the deal. So the fact that FIT won the contract shows that my “sweet spot” theory has some merit.
The Services Business Is Viable
The fact that Singapore opted to incentivize its citizens to buy FIT’s exercise guidance and one-on-one coaching service shows that the country believes that those services are useful. Those services differentiate FIT from its competitors and have very high margins. As a result, Singapore’s decision is very positive for the outlook of FIT stock.
The Bottom Line on Fitbit Stock
The deal with Singapore has renewed my faith that Fitbit’s devices will be appealing to insurers and employers. Moreover, the valuation of FIT stock, which has a market cap of less than $800 million, is quite low. Consequently, I recommend that investors buy shares of FIT stock now.
As of this writing, Larry Ramer owned shares of FIT stock.