I am admittedly a fan of the Fitbit – the little device that you wear that tracks your daily activity. When Fitbit the company went public last year, I was somewhat tempted to buy in, but I have an aversion to IPO’s as unless you are insider you usually overpay for IPO stocks.
So roughly a year later, I am looking at Fitbit stock, and its appears to me to be at a valuation that is pretty darn reasonable. It’s a $14 dollar stock, earned $.75 a share in 2015, and has huge revenue growth numbers:
Analysts have an earnings target of $1.17 for 2016, and $1.41 for 2017.
So you have to ask yourself – why is it so cheap selling at 12 times 2016 earnings? I think the market thinks the Fitbit is potentially a fad with lots of competitors out there. Also, the theory is the smartwatches and phones will replace the need for a separate tracking device. Valid points, but I am going to take the other site of that bet. The other day I posed this question to some co-workers who where wearing a Fitbit. The comments were the phone is not a valid tracking device (if they are at home they don’t have their phone with them, or if the phone is in their purse it doesn’t track). The battery life of a smartwatch is an issue – the watch is another device you have to charge daily – where the Fitbit goes for weeks before charging. Fitbit has a nice website where you can see how you are doing compared to your goals and your friends – so it does have a little network effect if it can continually be the market leader (If all your friends have a fitbit, you will want to be in their ecosystem).
I will be continually arguing with myself about whether the Fitbit will continually thrive, and watch for clues to which thesis will win. I figure at this valuation I have some wiggle room – if new competitors come out or revenue starts to fall, I can probably get out before there is too big of loss. But for now, I think Fitbit deserves a shot.