I’ve been bearish for some time on Fitbit Inc (NYSE:FIT) stock. But I’m now reconsidering this view – at least for the short run.
One reason is that, well, the sentiment probably cannot get any worse. During the past few years, the company has gone from a tech darling to a has-been. Keep in mind that – back in the summer of 2015 – the shares were fetching nearly $50. Right now, they are at about $6.
![Fitbit, Inc. (FIT)](https://investorplace.com/wp-content/plugins/lazy-load/images/1x1.trans.gif)
As a result, the valuation metrics are starting to look attractive, especially for a value investor. Consider that the price-to-sales multiple is a mere .84X. Hey, it is actually 0.45 when you strip out the $675 million in cash.
But valuation is not the only factor. FIT stock also should benefit from year-over-year comparisons. The reason is the last year’s holiday season was an absolute disaster. Revenue plunged by 19% to $573.8 million and the net loss came to 56 cents a share. Note that the Street consensus was calling for the top-line to hit $736.4 million.
So yes, the bar is set fairly low for the upcoming Q4. It is also encouraging that there are already signs of an improvement in the business. During Q2, the company reported revenues of $587 million, up from $400 million in the same period a year ago, and the earnings came to 12 cents a share. Analysts were forecasting revenues of $578 million and earnings of 11 cents a share.
But going forward, the main driver for FIT stock will be the rollout of its smartwatch, which is called Ionic. This is the result of three acquisitions – such as for Coin, Pebble and Vector — and heavy investments in R&D.
Granted, FIT has been late to the game and the competitive environment is intense. Just some of the rivals include Apple Inc. (NASDAQ:AAPL), Garmin Ltd. (NASDAQ:GRMN) and Xiaomi.
But for FIT, the company has been smart to focus on its core competencies in the fitness category. Some the Ionic smartwatch features include: An SpO2 sensor that allows for in-depth tracking, GPS tracking, water resistance of up to 50 meters, wireless headphones, a virtual personal trainer (which provides workouts that are personalized to your activities and health condition), mobile payments and a battery life of over 4 days.
True, the Ionic device is not without its issues and flaws. For example, while you can receive texts, you cannot send them! Also the overall design could probably be sleeker and the app store is no where near the depth of iTunes or Alphabet Inc’s (NASDAQ:GOOGL) Play.
But then again, for a first version, the Ionic is still impressive and is likely to get attention in the marketplace.
Bottom Line On FIT Stock
Keep in mind that the Ionic smartwatch is not just about the consumer market. FIT is also leveraging the device into the healthcare category. To this end, the company has struck a partnership with DexCom, Inc. (NASDAQ:DXCM), that will allow for the monitoring of a person’s glucose levels. No doubt, there is a great need for such a product, as there are over 400 million people across the world who suffer from diabetes.
And finally, FIT stock may benefit from the lackluster buzz from the new Apple Watch 3. According to various reviews, it appears that the device is having issues with its cellular features, such as connection with LTE networks as well as problems with the draining of the battery.
But again, even with some of the recent positive news for Fitbit stock, the sentiment is still fairly dour. Yet the Ionic smartwatch has a good chance of getting traction, which is likely to gin up much more interest in the shares.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is also 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.