Fitbit Inc (NYSE:FIT) is the leader in the connected and fitness market, and is scheduled to release its third-quarter financial results on October 31. Will FIT stock be able to maintain its record of delivering earnings and revenue that beat the consensus estimates of Wall Street analysts?
Over the past four quarters, the maker of wearable fitness-tracking devices posted better-than-expected financial results. In the second quarter alone, Fitbit stock posted earnings of $0.12 per share on $586.53 million in revenue, which is higher than the consensus estimate of $0.11 in earnings per share on $578.48 million in revenue. In the previous three quarters, FIT stock significantly outperformed Wall Street estimates.
Wall Street analysts are expecting FIT stock to report earnings of $0.19 per share and revenue of $503.2 million for the third quarter.
Based on its track record, I believe the company will once again beat the consensus estimates, and FIT stock could trade higher and regain most of the values it lost over the past year. Fitbit stock shares were negatively affected by intense competition in the market, and by a class action lawsuit filed against the company. (Source: “Fitbit Accuracy Questioned in Lawsuit,” CNN, May 20, 2016.)
Fitbit has lost more than 60% of stock value over the past 52 weeks. FIT stock declined from $41.97 per share to as low as $11.65 per share. The stock is trading around $15.87 per share, which is up by nearly 11% over the past month, driven by its better-than-anticipated financial results on August 2.
More Upside for Fitbit Stock
Despite challenges, Fitbit remains the global leader in the wearables market, with a 32.6% share of that market in the first quarter of 2016. The company shipped 4.8 million wearable fitness devices during the quarter, which is up 25.4% from 3.8 million units in the same period a year ago.
According to IDC Research, Inc., Fitbit started 2016 as the “undisputed leader” in the wearables market with the launching of its “Alta” and “Blaze” devices, which paved the way to a new chapter of fashion-oriented fitness trackers. (Source: “Worldwide Wearables Market Increases 67.2% Amid Seasonal Retrenchment,” IDC Research, Inc., May 16, 2016.)
The IDC report showed that Fitbit stock managed to overcome strong competition in the wearables market and has defeated big and established brands such as China’s Xiaomi Corporation and Apple Inc. (NASDAQ:AAPL).
During the company’s recent earnings call with analysts, Fitbit CEO James Park expressed confidence in the company’s growth over the long term. According to Park, the company continues to expand internationally, saying, “I’m so confident that I will not sell any stock until the end of the year.”
Park noted that misconceptions about the growing competition in the wearables market created significant headwinds for Fitbit stock. He pointed out that the number of competitors is not important, but what matters is their impact on the market. He pointed out: “Most of these entrants have not altered the competitive dynamics of our industry.”
According to Park, Fitbit has a deep understanding of what consumers want in a health and fitness device. Its brand is loved and trusted by millions of users worldwide. He added that Fitbit is the “brand of choice for consumers” looking for a wearable fitness device.
Furthermore, Park said the company’s key competitive advantage is its pace of innovation. The company has increased its investments in research and development (R&D) to accelerate its innovation and maintain and strengthen its leadership in the industry.
Fitbit’s newly-launched “Charge 2” and “Flex 2” devices, which both became widely available in the United States last week, have already been receiving positive feedback from customers.
Both devices are an upgrade to Fitbit’s most popular and best-selling wristbands, the “Charge HR” and the “Flex.” The newer devices come with a sleek design, enhanced exercise experience, and interchangeable bands to fit the style preferences of users. (Source: “Fitbit Reimagines its Most Iconic Fitness Trackers, Unveils Fitbit Charge 2 and Fitbit Flex 2,” Fitbit Inc, August 29, 2016.)
Some Wall Street analysts are particularly bullish about the Fitbit Charge 2, based on the early reviews for the wristband. A majority of the first 150 reviews on the Amazon.com, Inc. (NASDAQ:AMZN) web site came from existing Fitbit users. That figure indicates that users are convinced they should upgrade to the new device because of its new design and features.
Reviewers describe the Fitbit Flex 2 as a swim-friendly fitness tracker and they describe Fitbit Charge 2 as a wristband for those who need to conquer stress.
The Bottom Line on Fitbit Stock
Fitbit is still the leader in the wearable fitness market despite its growing competition. The company’s latest products, which merge fitness and fashion, have been successful. The company is expected to sell millions of units of its Alta, Blaze, Charge 2, and Flex 2 devices during the holiday shopping season.
A majority of analysts covering the company believe that it could outperform the market. They forecasted that FIT stock could reach as much as $31.00 per share, which is an upside of 90% over the next 12 months.
Fitbit stock is currently trading at a discount from its initial public offering (IPO) price of $20.00 per share. I believe that investing in the stock is safe because the company is profitable. Take note that its financial results have exceeded the Wall Street estimates consistently.