Don’t Trust Analysts on FIT Stock
Fitbit Inc (NYSE:FIT) has not enjoyed a happy-go-lucky year so far. Fitbit stock lost almost 50% of its value since the beginning of 2016. Nevertheless, Fitbit stock has started to rebound. Last February, Fitbit was at its lowest point, but it soon started to climb back. Now the Fitbit bulls are reaping the rewards for believing in the company’s potential.
Unfortunately for Fitbit stock, it’s another case of the textbook existential question: “What in the hell is Wall Street thinking?” Indeed, it would take no less than a Socrates to figure what possible logic could instruct the market in selling off Fitbit.
Fitbit stock has dropped over 15% even as the company announced $11.0 million ($0.05 per share) in earnings on revenues of $505.4 million against $336.8 million a year earlier!
The usual analysts, people so lofty they sneeze gold dust, had expected a quarterly earnings per share (EPS) of $0.03 on revenues of $446 million. Fitbit beat these handily. The problem is, as always, unrealistic and frankly ridiculous expectations. The same frustrated analysts were demanding guidance of $0.26 per share for the second quarter, while Fitbit could only promise EPS between $0.08 and $0.11. Fitbit also said that revenues would be around $565 million to $585 million. Over the full 2016 year, earnings per share are expected between $1.12 and $1.24 on revenues of $2.5 billion to $2.6 billion.
There is no other way to interpret Wall Street’s reaction to Fitbit’s excellent results as a combination of arrogance and greed, all infused by the modern malaise of focusing on trivial details. Yes, Fitbit has issued lower guidance than the lord analysts were expecting, but really, who cares? It’s the only point where they went lower and, frankly, it’s much better to lowball expectations and beat them than to boast empty promises.
Fitbit has a new winning product that analysts and investors are also ignoring. By focusing on the numbers, they ignore the main point: Fitbit makes things that people like and want. Fitbit is taking on none other than Apple Inc. (NASDAQ:AAPL) with its “Blaze” product.
The Fitbit Blaze is nothing short of a direct competitor to the “Apple Watch.” The Blaze has sold well despite a lukewarm start to sales. It’s been a bit of a sleeper but a few analysts did manage to think with a little more imagination than their wallets could hold. Stanley Kovler at Citigroup and Brad Erickson at Pacific Crest both liked Fitbit’s sales potential for the Blaze. (Source: “Fitbit: Citi Checks Show ‘Significant’ Expansion Opportunity After Earnings,” Benzinga, April 13, 2016.)
The Blaze is a smart fitness watch. It may not be as rich in functions as the Apple Watch but it’s cheaper and does the things people need from such a device—no more, no less. At less than $300.00, the device is elegant, rivaling many standard regular watches in higher price ranges. It features a lovely LCD and interchangeable straps. In other words, unlike the Apple Watch, the Blaze has the potential to be a fashion item. Its market potential is much higher than anybody would expect. It’s not unlike what Swatch achieved in the mid-1980s.
Those who use the Blaze for actual sports appreciate the ease of use and the functionality, such as setting alerts every lap and/or mile. But it’s not just the Blaze; Fitbit also has the “Alta.” Alta has huge appeal thanks to its simple design and one week of use without charging. The device offers the basic answers everybody who follows a strict health regimen wants and needs to know such as calorie intake and sleep quality, among other things. Thanks to its long charge, it keeps its user motivated and becomes an essential fitness tool. The Blaze and the Alta have huge sales potential worldwide due to their accessible prices.
The Bottom Line on Fitbit Stock
Forget the analysts and focus on the products and on their higher-than-expected sales and appeal. Visit your nearest department or electronics store and see one of these for yourself. You will like the devices and learn to love the stock, especially when the current batch of investors and analysts has made it so cheap to buy.