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Can Fitbit Keep Going After Last Week's 9% Pop?

By Rick Munarriz – Jul 11, 2016 at 9:15AM

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Shares of the leading distributor of fitness trackers have risen in seven of the past eight trading days following a bullish analyst nod and encouraging news on upcoming products.

Image source: Fitbit.

Fitbit (FIT) investors caught a break last week. Shares of the top dog in wearable fitness moved 9% higher last week after encouraging news on new products and another health partnership. 

Fitbit stock is on a roll. It has moved higher in seven of the past eight trading days, soaring 13% in the process. 

The good news kicked off two weeks ago when Morgan Stanley analyst Jerry Liu tapped Fitbit as his top pick in consumer electronics. Liu has a bullish overweight rating on the stock, and a price target of $32 that suggests the shares will more than double from present levels.   

Voracious optimism is rare for one of this year's biggest losers. Shares of Fitbit have plunged 55% so far in 2016, and that's with the benefit of the recent bounce. 

Liu feels that fears of the competitive climate that have weighed on Fitbit's margins and stock price are overblown. He sees it benefiting from new products and accessories that are expected to hit the market later this year. His distributor and reseller channel checks indicate that demand is still going strong for Fitbit's activity-tracking wrist huggers.

A good week for Fitbit

The rally continued into last week, initially fueled by news that it will be partnering with Dana-Farber Cancer Institute to see if exercise is a factor in reducing the chances of a recurrence for breast cancer survivors. It's Fitbit's largest collaboration on a health study to date.   

The news got even better later in the week when tech blogger Wareable ran a story on two new products in field testing at Fitbit. There isn't a lot of info on the features or functionality of the two devices -- codenamed Laryon and Fermion -- other than that folks are secretly testing them in the wild with black wrist covers to hide their form or Fitbit's association. It's the same thing that Fitbit apparently did for the Alta fitness tracker and Blaze smartwatch last year, and both of those products went on to sell more than 1 million units apiece during the first three months of this year. 

These two products may not be the updated Flex and Charge HR trackers that Morgan Stanley's Liu was referring to in last month's bullish take. We should hopefully know more on all fronts in early September when Fitbit shows off upcoming wares at the annual IFA convention in Berlin. 

Fitbit has made a strong recovery since hitting an all-time low the day before Liu gave the stock a bullish nod. It still trades below its IPO price of $20 and considerably beneath its all-time high north of $50 set last summer. Sales growth is slowing, but still climbing at a healthy clip. In May, it raised its top-line guidance, expecting 35% to 40% in revenue growth for all of 2016. The bottom line has been more challenging, but pushing out new products and maintaining competitive pricing are necessary moves to stay on top. If we look out to analyst profit targets for next year, we see Fitbit's multiple drop to the single digits. That makes the stock a bargain if some of its new products pan out. 

Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Fitbit. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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