Ignore the Critics; Fitbit Stock Outlook for 2016 Is Bullish
For a while there, it looked as if Fitbit, Inc. (NYSE:FIT) had all the right qualities of a successful company: great growth, an awesome product, and a cult-like following. Following the company’s initial public offering (IPO), analysts loved the camera maker and many had a bullish FIT stock outlook for 2016.
There was quite a bit to back up the stock’s case, too. Fitbit released quite a favorable earnings report for the third quarter of 2015, announcing $409.3 million worth of revenue, which is well north of the $359.0 million forecasted by analysts. The FIT stock price seemed poised to skyrocket and the company was about to join the ranks of other established and successful tech companies.
However, Fitbit made a slight blunder, as new companies tend to do, in announcing on November 2 that it would be releasing additional FIT shares. (Source: “Fitbit Inc (FIT) Stock CRUSHED Despite Q3 Beat,” InvestorPlace, November 3, 2015.) The result was a harsh nine-percent drop in the Fitbit stock price by the next day.
Wall Street analysts, ever eager to cast any new company that stumbles into the dustbin of stock history, pronounced Fitbit a dud. (Source: “Fitbit Shares Knocked Off Track After Earnings, Stock Sale,” The Wall Street Journal, November 3, 2015.) It would fail, the naysayers proclaimed, just as a great many seemingly perfect tech firms had before it.
But this is where the analysts have gotten it wrong and where the savvy investor could make big returns by taking a well-timed position in Fitbit stock.
You see, the FIT stock price appears to have found an artificial bottom on the basis of a surprise share dilution and could be about to surge higher. This means that Fitbit is undervalued, but this won’t be the situation for long; smart investors always catch on before it’s too late. Once the crowd catches the scent of success, you can bet the Fitbit stock price will soar.
Fitbit Stock Outlook 2016
Before going any further, it’s important to briefly outline how Fitbit got to where it is today.
When the company first announced it would be diluting its 8.4 million shares by releasing an additional 21.0 million, investors were obviously fast on the draw and sought to get out before the stock price dropped. (Source: “Fitbit sinks after it says more shares to hit market,” CNBC, November 3, 2015.) But this was a premature move, because once the initial panic wore off, what remained was still one heck of a solid company. The Fitbit stock outlook is far from negative, and here’s why.
Even though competitors such as Samsung Electronics Co., Ltd., Microsoft Corporation, Apple Inc., and Garmin Ltd. all offer or plan to offer variations on the wearable fitness device pioneered by Fitbit, it does not appear as if Fitbit’s sales have been negatively affected so far. Add to this the fact that many rival devices offer unique features and tie-ins that Fitbit does not support, and you wouldn’t be an exaggeration to say Fitbit’s performance is impressive. (Source: “Here’s the Chinese Start-Up Out to Dethrone Fitbit in Wearables,” Bloomberg, November 2, 2015.)
In fact, Fitbit CEO and co-founder James Park dismissed analysts’ worries over the “Apple Watch,” referring to it as a device with “no material impact.” (Source: “Fitbit posts strong third-quarter revenue, says Apple Watch had no ‘material impact’,” Apple Insider, November 3, 2015.) Now that’s the sort of confidence an investor likes to hear from the man at the helm of a company they are betting their hard-earned money on.
In case you think this is a load of hot air, consider the following: despite the quick rise of rival devices, Fitbit managed to sell 4.8 million wearable fitness devices in the third quarter of 2015, which is an improvement over the second quarter’s 4.5 million. (Source: “Here’s why Fitbit’s Shares Fell 9% Today,” Fortune, November 2, 2015.)
And we haven’t even gotten into the holiday shopping season yet, where the explosion in health-consciousness should bring huge sales numbers for Fitbit.
While critics will point to the radical difference in price range between, say, an Apple Watch and a Fitbit, this actually reinforces my earlier point that competitors simply can’t undermine Fitbit. The company manufactures a solid device, without any added frills, at a reasonable price. It couldn’t be simpler than that, because the low price of a Fitbit means it will appeal primarily to value-conscious consumers, which now make up a massive market segment.
As for those critics who point to other infamous tech companies initially doing well before crashing and burning, I’d like to call their attention to Fitbit’s financial performance. Numbers don’t lie, folks, and that’s the biggest reason I remain positive on the Fitbit stock outlook for 2016.
Third-quarter 2015 revenue levels for Fitbit soared by a spectacular 168% over the same period in 2014. While this is an impressive figure, it’s all the more positive based on Fitbit outperforming analysts’ forecasts by 14%. Additionally, the consensus among analysts was that Fitbit’s earnings per share (EPS) would come in around $0.10; Fitbit reported EPS of $0.24.
Growing sales numbers, overperformance across the board, and healthy financial statements: now that’s what I call a robust third quarter.
As for the future, Fitbit announced fourth-quarter guidance that exceeded analysts’ expectations. While it remains to be seen whether or not the company can live up to these lofty estimates, its past performance numbers indicate it’s a very real possibility.
The Bottom Line on the Fitbit Stock Outlook for 2016
No matter which way you put it, 2015 has been and will continue to be a big year for wearable fitness devices and 2016 will be no different. With Fitbit’s combination of great financial performances, consistently-growing sales numbers, and a track record of exceeding analysts’ forecasts, it’s no surprise that I remain bullish on the FIT stock outlook for 2016. A wise investor recognizes that this is healthy tech company that makes a great product and that makes it worth a second look.