Shares of fitness wearables company Fitbit (NYSE:FIT) have staged a mini-comeback over the past few months, jumping on better-than-expected earnings results, the official unveiling of the Ionic smartwatch, and news of a partnership related to glucose monitoring. The stock is still down about 88% from its all-time high, but at least it's been moving in the right direction.

Fitbit stock looks cheap, assuming the company eventually pulls itself out of the gutter. That's the main reason to consider investing in the battered shares. On the flip side, Ionic will face an uphill battle when it launches later this year. Fitbit's turnaround hinges on a successful entry into the smartwatch market, and Ionic becoming a best-seller looks like a long shot to me.

Three Fitbit Ionic smartwatches with different bands, laid out on a bed of a gravel-like substance.

The Fitbit Ionic. Image source: Fitbit.

There's value in Fitbit stock

Plunging sales over the past few quarters have rendered Fitbit an unprofitable enterprise. Over the past 12 months, the company has posted a GAAP net loss of $238 million on about $1.73 billion of sales. Fitbit has been cutting costs, even laying off employees earlier this year. But sales will need to rebound for the company to stop burning cash.

If you assume that sales will eventually recover, driven by Ionic and other new products, a value argument can be made. Let's start with the balance sheet. At the end of the latest quarter, Fitbit had $676 million of cash, cash equivalents, and marketable securities, and no debt. This cash represents about 46% of Fitbit's $1.46 billion market capitalization. Backing it out, the market is valuing Fitbit's business at just $784 million.

With full-year revenue expected between $1.55 billion and $1.7 billion, Fitbit stock is trading for less than half of sales after backing out its cash. Selling hardware is a tough business, so I wouldn't expect the double-digit operating margins of the past to return. But even a 5% operating margin on $1.7 billion of sales would produce net income of about $55 million, assuming a 35% tax rate. And if revenue moves higher in 2018 and beyond, even meager margins could be enough to send the stock soaring.

The trouble with Ionic

There is no value case for Fitbit stock if the company never recovers, though. Ionic, Fitbit's first full-featured smartwatch, is at the center of the turnaround strategy. Fitbit is launching other new products as well, including the Fitbit Flyer wireless headphones, but all eyes will be on the Ionic when it launches in a few weeks.

Fitbit's $300 smartwatch will go head-to-head with the Apple Watch, as well as Android Wear devices from a wide variety of competitors. Fitbit has opted for its own operating system, meaning that the number of apps available on the Ionic at launch will be meager. Pandora and Starbucks apps will be there, and Fitbit's own mobile payment system will be rolling out over the coming months. But the assortment will pale in comparison to the more mature Apple and Android ecosystems.

This is the Ionic's biggest drawback. A 4-day-plus battery life and robust fitness tracking features will appeal to many current Fitbit users, but a lack of apps will make it a tough sell to those also considering an Apple Watch. Fitbit will need to convince developers to support its smartwatch. If we learned anything from Microsoft's failure with Windows Phone, successfully launching a new platform in the shadow of already mature platforms is next to impossible.

If you're buying Fitbit stock today, you're betting that the company can return to growth. If it succeeds, the stock could be in for quite the rally. But Ionic will need to be a success for that to happen, and I'm not convinced the odds are in Fitbit's favor. If Ionic fails to restart growth, I'm not sure what will.

Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends AAPL, Fitbit, P, and SBUX. The Motley Fool has a disclosure policy.