Fitbit Inc (NYSE:FIT) stock is down almost 50% since the start of the year, but it might be about to take off.
When Fitbit unveiled its first-ever smartwatch, the “Fitbit Blaze,” at the Consumer Electronics Show back in January, investors were underwhelmed with its lack of standout features. Investors were expecting a watch to rival Apple Inc.’s (NASDAQ:AAPL), but instead they perceived the watch as a fitness tracker with a screen. After the unveiling, FIT stock dropped 18% over the next few days and has continued to fall since.
Investors thought the Fitbit Blaze would be a dud, but it looks like the new device is proving the critics wrong.
On Thursday, Fitbit announced that it has sold more than a million Blaze smartwatches in the first month since its release. The company also said that it sold more than one million units of the latest version of its “Alta” fitness tracker that went on sale on March 9. Shares of Fitbit were up seven percent on the news.
If you’re kicking yourself for not getting in on FIT stock before the news release, don’t fret. At least one analyst thinks FIT stock could jump a lot higher.
On March 31, Longbow Research analyst Joe Wittine initiated coverage on Fitbit shares with a “Buy” rating and set a $20.00 price target. (Source: “Fitbit Shares Can Return to IPO Price, Analyst Says,” The Wall Street Journal, March 31, 2016.) That implies an upside of about 42% from Thursday’s opening price of FIT stock.
So why is Wittine so upbeat on FIT stock? He cites indications of “huge” demand for the Blaze and an expected increase in the average selling price Fitbit will command since consumers will be trading up from lower-priced devices. (Source: Ibid.) The success of the Blaze will help to fuel FIT stock in the short term, Wittine said.
“Our discussions with retailers indicate…very strong initial consumer uptake of the new…Blaze, which has prompted re-orders at some retailers including Best Buys,” Wittine said. (Source: Ibid.) He also added that those re-orders could lead to better than expected quarterly earnings.
In addition to the Blaze, Wittine believes that the new Alta tracker will prompt a product cycle upgrade as Fitbit customers replace their old devices. According to Wittine, one-third of new Alta sales are from Fitbit customers that already have a lower-end device.
If you were paying attention to hints online, none of this news should be a surprise. On Amazon.com, Inc. (NASDAQ:AMZN), the Fitbit Blaze is the number one selling smartwatch, with 83% of the 1,247 reviews giving the watch a four- or five-star rating.
In comparison, reviewers have given Fitbit’s “Charge HR” and the “Surge” a 74% and 68% four- or five-star rating, respectively. Both products are the top sellers in their respective categories.
Also, a few weeks ago, one analyst hinted at the success of the Fitbit Blaze. Bank of America Merril Lynch analyst, Nat Schindler, believed his peer group was underrating the potential of the wearable device, as it was most likely selling well, according to his checks.
“We checked retailers websites including Best Buy, Target, and Kohl’s and found retailers experiencing delayed shipping or individual store outages likely indicating Blaze has sold well since launch,” Schindler said in a note to clients. “In addition, many stores restocked which may indicate that FIT had a retailer reorder of Blaze during 2Q which was not included in guidance.” (Source: “New Fitbit Checks Show Analysts Are Underrating Blaze Potential,” Benzinga, March 15, 2016.)
The Blaze is successful so far because it’s more than just the fitness tracker that investors thought it was. The watch has an impressive five-day battery life, text message notifications, and the ability to play music and onscreen workouts. It can even automatically recognize what physical activity you are doing. And it’s not too expensive, with a price tag of $199.99.
The Bottom Line on FIT Stock
Fitbit stock has been hit hard over the past year, but this may be an opportunity for investors.
The company is still growing like crazy. Last quarter, Fitbit’s revenue increased 92% over the previous year while earnings climbed 37%. With those kinds of growth rates, FIT stock also appears incredibly cheap, trading at only 10.66 times next year’s earnings.
With sales of the Fitbit Blaze and Alta looking promising after just about a month on sale, you may want to take a look at FIT stock.