Shares of Fitbit Inc (NASDAQ:FIT) are taking a beating lately. After an impressive sprint out of the gate following its initial public offering (IPO) last July, FIT stock has nosedived. In the last week alone, Fitbit stock has plummeted about 25% after lower-than-expected guidance for the first quarter in 2016. Since the start of the year, FIT stock is down about 60%.
Fitbit might be beaten by investors, but don’t count it out. If you believe in a quality business, with shares on sale, then Fitbit might be a company worth looking at a little closer. Here’s why.
FIT stock is well positioned to take advantage of the wearable devices market, which is undergoing explosive growth. The wearables market sector is expected to grow from $15.0 billion in 2015 to $25.0 billion by 2019. (Source: “Wearable Tech Market To Treble In Next Five Years,” Forbes, October 29, 2015.) That’s a growth rate of 64%.
Also, Fitbit has a dominant position in the market. According to International Data Corporation, FIT stock commands about 30% of the wearable device market, almost twice as much as second-place Apple Inc. (NASDAQ:AAPL). (Source: “The Worldwide Wearables Market Leaps 126.9% in the Fourth Quarter and 171.6% in 2015, According to IDC,” International Data Corporation, February 23, 2016.)
At the end of 2015, Fitbit’s devices were only selling in 48,000 retail outlets in 55 countries. (Source: “Fitbit Reveals Fitbit Blaze – The Smart Fitness Watch That Empowers Consumers to Get Fit in Style,” Fitbit Investor Relations, January 5, 2016.) The U.S. comprised about 74% of revenue in 2015, so there is still plenty of room to grow overseas. The company just started to sell its products in China and India, which should be a boon to sales.
Sales of Fitbit products are also growing rapidly. In the latest quarter, revenue in the U.S. grew 100% year-over-year, but growth internationally was also equally impressive. In Europe, the Middle East, and Africa regions, sales grew about 191%. Sales grew 77% in the Asia-Pacific region.
Global expansion is likely to drive Fitbit stock’s revenue for years to come.
FIT Stock Is Cheap
Sales and marketing expenses for the global launch of the “Fitbit Blaze” and “Fitbit Alta” will hit earnings a bit next year, but FIT stock is incredibly cheap for a high-growth stock. It is currently trading at 8.8-times next year’s earnings, which is insane when you consider that revenue is expected to grow at about 38% in the upcoming fiscal year. (Source: “Fitbit Reports $712M Q415 and $1.86B FY15 Revenue; Guides to $2.4 to $2.5B Revenue in FY16,” Fitbit Investor Relations, February 22, 2016.)
For a bit of perspective, rival Garmin Ltd. (NASDAQ:GRMN) reported in its latest earnings report that growth for its fitness devices grew 14% for the quarter. (Source: “Garmin Reports Q4 and Fiscal 2015 Results,” Garmin Investor Relations, February 17, 2016.) Fitbit is significantly outpacing Garmin, with FIT stock reporting 100% year-over-year revenue growth in the latest quarter.
The Bottom Line on FIT Stock
With the stock hammered because investors might think Fitbit’s devices might be a fad, now might be a good time to take a closer look at the company and perhaps consider adding some FIT stock to your portfolio.