Please ensure Javascript is enabled for purposes of website accessibility

Can Fitbit Stock Keep Going After Last Week's 11% Pop?

By Rick Munarriz – Apr 15, 2018 at 10:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The wearable-tech pioneer moves higher, bouncing back after an analyst downgrade the week before.

Fitbit (FIT) has been a meandering mess of an investment over the past two years, but it found a way to be among the market's biggest winners last week. The leading maker of fitness wristbands saw its shares move 11.48% higher for the week. There was no particularly bullish news out on Fitbit to explain the uptick. The shares are likely just bouncing back after hitting all-time lows a week earlier following a Wall Street downgrade. 

Yuuji Anderson at Morgan Stanley lowered his rating on the stock from equal weight to underweight, feeling that any incremental gains with its new smartwatches will be more than offset by the declines in its fitness wristbands and other legacy products. Fitbit's been talking up its opportunities in health services, but Anderson feels that it will take some time for those opportunities to play out. His now bearish opinion finds him lowering his price target from $5 to $4. He sees the stock eventually heading as low as $2 as declining demand for Fitbit products begins to accelerate, exacerbating cash burn concerns. 

Julianne Hough jumping rope with a Fitbit wristband.

Image source: Fitbit.

 It's hard to get back in shape

Investors need to take last week's rally in stride. Fitbit is still in a funk, trading lower for the third year in a row and shedding 82% of its value in the process. Revenue seemed to stabilize in Fitbit's latest quarter, but there's still a lot of work to be done before we can call this a turnaround. The modest 0.5% decline in revenue was the handiwork of the release of its first smartwatch, a $299 device that drove average selling prices higher at the expense of total devices sold.

Fitbit's making some headway overseas, but it continues to languish closer to home. Revenue took a 13% hit in the U.S., and investors are bracing for another year of declining sales. Fitbit points out that consumer demand is shifting to smartwatches, a niche where it's nowhere close to being the dominant player the was it fitness wristbands.  

Though Fitbit's responding to shifting trends with the recent release of a lower-priced $199 smartwatch, it's still targeting revenue of $1.5 billion this year, just below the $1.6 billion it rang up last year and well below the nearly $2.2 billion it scored in 2015. 

There are opportunities for growth here. Fitbit's still eyeing growth with its nascent health solutions segment in 2018, increasing its premium subscribers. Fitbit's overall user base also continues to grow despite the contracting unit sales. Active users grew from 23.2 million to 25.4 million last year. 

The sentiment still remains negative. Analysts see losses continuing through the next few years. Fitbit's cash-rich balance sheet -- more than half of its market cap is backed by its greenbacks -- will help see it through the red ink, but investors don't have the same kind of patience. Fitbit had a good week last week, but it has a long way to go before earning its keep as either a growth stock or a turnaround story.

Rick Munarriz owns shares of Fitbit. The Motley Fool owns shares of and recommends Fitbit. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Fitbit, Inc. Stock Quote
Fitbit, Inc.
FIT

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
327%
 
S&P 500 Returns
105%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.