Brace Yourself! FIT Stock Is Coming Back with a Bang
Leading fitness wearables company Fitbit, Inc. (NYSE:FIT) has been getting hammered ever since its initial public offering (IPO) five months ago. In the last month alone, FIT stock has tanked more than 30%. But a string of positive news on Monday morning, including analyst upgrades and robust holiday sales, has rejuvenated my hopes in the company. Here’s why…
Is Fitbit, Inc. About to Hit $60.00?
Fitbit is having a groundbreaking holiday sales season. The latest data from big retailers like Target and Best Buy shows that the demand for fitness tracking wearables has almost doubled since last year, with Fitbit standing out as a clear winner in the wearables category. (Source: “FitBit Was A ‘Winner’ Over Black Friday Weekend: Stifel,” Barrons, November 30, 2015.)
The news sent analysts scrambling to up their price targets. The Bank of America upgraded FIT stock, slapping on a $36.00 target. Barclays, following suit, upped its rating on the shares to “Overweight.” Analyst Jim Duffy at Stifel reiterated his “Buy” rating and $60.00 price target on the stock, representing a 109% gain from where shares were trading late Monday afternoon.
Plus, it has become obvious that the fears from “Apple Watch” were far outstretched. Ahead of the holiday season, a survey posted Fitbit to be the top choice in the wearables category for the majority of respondents in the U.S. The majority who already owned a fitness tracker held a Fitbit band, not an Apple Watch. (Source: “Fitbit, Apple Watch demand up ahead of holidays,” Investors.com, November 20, 2015.)
Chart courtesy of www.StockCharts.com
Sadly, the bears continue to label it a “fad.” They cite its demand to be temporary, suggesting sooner or later it will fade away. I don’t disagree with the fact that if the company doesn’t innovate, its bands will eventually end up being ordinary commodities with no moat.
However, you must notice my emphasis on “if” here. The fact that management has decided to go for another round of equity financing within six months of going public bears a strong indication that something new is brewing at the company’s research and development level. The company has stepped up investment spending to spark new innovations.
Fitbit had a stellar third quarter this year and investors have a reason to believe that the next quarter will be no less impressive.
In addition to the promising holiday season, the year-end seasonality will also prove to be a contributing factor. New Year’s Eve is just around the corner, and with New Year’s comes New Year resolutions. Fitness and weight loss have always been among the top New Year’s resolutions for Americans. Beginning this year, 69% of the Americans surveyed by Nielsen had identified fitness and weight loss as their top resolutions. (Source: “This Year’s Top New Year’s Resolution? Fitness!!,” Nielsen, January 8, 2015.)
The New Year’s factor will further boost demand for fitness trackers, with Fitbit remaining the top preference. Find it far-fetched? I have talked to at least three people so far who resolve to lose weight and get in shape come January. This excludes myself; I happen to have the same target marked as top priority, with my eyes set on Fitbit’s “Surge” as my likely trainer-cum-tracker.
The Bottom Line on FIT Stock
While most unicorn IPOs have been duds this year, this is one company that has had promising growth potential from the beginning. Competition may be catching up, but it’s not posting too big a threat at the moment. Fitbit still enjoys industry dominance, with only Apple as a close competitor.
However, company skipper James Park has been confident in the latest quarter call with analysts that Apple Watch will have no “material affect” on Fitbit’s success in the foreseeable future. This is being proven true with holiday sales data. Additionally, it seems like the company’s management is cooking up something new to add to its product portfolio, which is something positive to look forward to.
The bottom line: the $60.00 price target given by Stifel may be optimistic, but growing sales suggest FIT stock still has a lot of upside.