Fitbit Inc (NASDAQ:FIT) stock is one of the worst performers of the year, falling 56% before taking a breather and rebounding about eight percent over the last week. So what is sending Fitbit stock crashing?
It’s definitely not earnings. Fitbit has reported earnings three times since its initial public offering (IPO) last June; each time the company beat analyst expectations. In the latest quarter, FIT stock earned $0.35 per share and $712 million on revenue when analysts were expecting $0.25 per share and $649 million in revenue. Guidance for the full year also remained in line with analyst expectations.
It’s also not sluggish growth. In fact, growth at Fitbit is taking off. Revenue increased 92% over last year, while earnings climbed 37%. Fitbit also sold 8.2 million connected health and fitness devices, which is up 55% over the previous year.
One factor could be the emergence of new competitors into the wearable device field. In the fourth quarter of 2014, Fitbit dominated the global wearable device market with a 43.86% share.
Apple Inc. (NASDAQ:AAPL) was a non-player until it released the “Apple Watch” last April. Fitbit still dominates the market, but the company must keep looking over its shoulder, as Apple now accounts for about 15% of the market, while Fitbit’s share has shrunk to just less than 30% in the fourth quarter of 2015. (Source: “The Worldwide Wearables Market Leaps 126.9% in the Fourth Quarter and 171.6% in 2015,” International Data Corporation, February 23, 2016.)
The market is getting more crowded, too, as Under Armour just recently unveiled “HealthBox,” its suite of products that includes a wristband, heart-rate monitor, Wi-Fi-enabled scale, smart shoe, and Bluetooth headphones.
But FIT stock started to decline well after competitors started to eat into its market share over the past year. There must be something else affecting it.
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 Watch. Instead, they perceived the watch as a fitness tracker with a screen. After the unveiling, FIT’s stock immediately dropped 18% the next few days and has continued to fall since.
But at least one analyst is saying that his peer group has got it all wrong on the Fitbit Blaze. Bank of America Merrill Lynch analyst Nat Schindler believes analysts are underrating the potential of the wearable device, as it’s most likely selling well.
“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.)
On Amazon.com, Inc. (NASDAQ:AMZN), the Fitbit Blaze is the number one selling smartwatch, with 86% of the 842 reviews giving the watch a four- or five-star rating. In comparison, reviewers have given two of Fitbit’s other products—the “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.
All of this points to the likelihood that the Fitbit Blaze is being well received. It’s going to be a solid growth driver going forward for the company, which will also be good news for FIT stock. Fitbit also indicated in its latest earnings release that pre-order sales of the Blaze were exceeding the company’s forecasts—another good sign.
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, the ability to play music and on-screen workouts, and 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, but this may be an opportunity for investors. FIT stock is trading at about 10 times next year’s earnings. That seems incredibly cheap for a company that is still growing like crazy and that just released a product that will probably be a hit. Investors may want to take a closer look at FIT stock at this time.