Why FIT Stock Has Tons of Upside
Despite its disastrous performance in 2015, Fitbit, Inc. (NYSE:FIT) could rebound this year. There are several tailwinds for FIT stock, most notably new products and increased spending in the U.S. economy. Fitbit stock could be vastly underpriced.
Recently, the company unveiled its newest smartwatch, the Fitbit “Blaze.” It’s much sleeker than its predecessors and moves easily between straps. You can finish a workout, pop out the watch face, and pop it into another strap for a night out on the town.
Of course, there is the threat of increased competition in the wearable technology space. Right now, we’re seeing a lot of upcoming merchandise in the Consumer Electronics Show (CES), which is making Fitbit investors very anxious. In fact, FIT stock lost more than 12% in a single day, but many of those concerns could be overblown.
Let’s take a quick tour of the competition from Under Armour, Inc., Apple Inc., and Fossil Group, Inc., because even after looking at them, I’m willing to bet that Fitbit will be fine. (Source: “Fitbit Plummets as Competition in Fitness Devices Heats Up,” Bloomberg, January 5, 2016.)
How Fitbit Fares Against Rivals
The CES is like prom for nerds. Every January, techies from across the country show up in Las Vegas to see which gadgets will soon hit the market. It became the launching pad for almost all major innovations from the world’s biggest technology firms.
At the CES, it becomes easy to spot which trends are picking up steam in the industry. Imitation is a central tenet of technological evolution, so it’s no surprise that wearable technology, driverless cars, and connected home devices were in vogue this year.
For example, Under Armour (UA) came out of left field with a slew of products designed to elevate the company into a wearable tech firm. There’s no denying that UA has enormous branding power in athletic wear, making wearable tech a clever addition to its existing lineup. (Source: “HTC’s First Products for Under Armour Highlight a Risky Path Forward,” Re/Code, January 5, 2016.)
What was especially clever, however, was not trying to build the technology itself. Under Armour is releasing the fitness tracking devices in partnership with HTC, which in itself is reassuring. Not that HTC is a market leader or anything; its share of the smartphone market has all but disappeared. Yet HTC has the intellectual infrastructure to pull this move off well and create a decent product.
Likewise, Fossil purchased Misfit Ray (a maker of wearable tech and connected home devices) last year, giving Fossil enough savvy to deliver more than 100 wearable devices in 2016. I should note that Fossil devices are more stylish than sporty.
Then there’s the “Apple Watch.” Apple has a fully connected smartwatch that acts as an extension of its “iPhone.” This product sold incredibly well upon entering the market, but sales have slowed considerably since then. Now, rumors abound that a newer Apple Watch will hit the market this year, so maybe that can help stem the bleeding. (Source: “Fitbit Plummets as Competition in Fitness Devices Heats Up,” Bloomberg, January 5, 2016.)
Analysts have wrongly assumed that Fitbit’s fortunes shrink with added competition. From where I’m standing, I don’t see that at all.
I’m Still Bullish on Fitbit Stock
Under Armour is charging $400.00 for its bundle of products, which must be bought together. That could appeal to people who live in the gym, but I doubt most Americans will cough up that kind of dough for fitness gear. It’ll likely stay a niche product.
Next up is Fossil, which isn’t really a threat to Fitbit at all. Fossil’s tech watch designs are classy and meant for fashion-conscious folks. Fitbit’s brand is intrinsically tied to exercise, so I doubt it’ll cede market share to a designer brand.
Then there’s Apple, the big kid on the playground. Maybe the “Apple Watch 2” will meet expectations, but maybe it won’t. Regardless, the company is going to sell a lot of wearable devices, but they can only sell to Apple users. That may be a fair number of consumers, but it’s not everyone (and it’s certainly not the majority of consumers, either).
How many “Android” users are going to migrate to Apple just because of its new watch? That should be the question we ask ourselves before evaluating Fitbit stock.Considering that Fitbit is “Android”- and “iOS”-friendly, it could end up being the first option for the majority of consumers.
In that light, the upside for FIT stock is huge.