Fitbit (NYSE:FIT) shares are trading at their highest level of 2018 after Citron Research put out a bullish report on the leading maker of fitness wristbands. Citron is arguing that the stock will hit $15 later this year if it isn't bought out first. 

A short-term price target of $15 is impressive for a stock that's been waffling about in the mid-single digits for more than a year, suggesting 136% of upside off of Friday's close. Citron's Andrew Left is known more for his bearish missives, but this is the third time over the past three weeks that he's put out a bullish note on a controversial and heavily shorted stock. I guess it takes a short to sniff out a short squeeze. 

Julianne Hough jumping rope with a Fitbit on her wrist.

Image source: Fitbit.

Getting back in shape

Citron isn't beating the drum when it comes to suggesting that Fitbit's once trendy wrist-hugging activity trackers will storm back into fashion. It recognizes that this is a dead business, and rightfully so after six straight quarters of year-over-year declines in revenue.

Citron's excitement is based more on the digital health and tech-med announcements by Fitbit that have gone largely ignored by mainstream investors. Fitbit's been striking deals with major insurers. It has inked partnerships covering everything from data sharing to glucose monitoring. It even has the distinction of being one of the few companies accepted to the Food and Drug Administration's digital health precertification pilot program. These events have generally not triggered stock spikes, likely because they're not moving the needle in terms of short-term revenue growth. 

The payoffs will come later, as Citron is applauding heavy research and development outlays despite what it's doing to Fitbit's bottom-line results in the near term. The market isn't as patient as Citron -- punishing the former market darling as it stretches its streak of quarterly losses to six. Analysts don't see sales growth and profitability coming back until 2019 and 2023, respectively. 

Citron argues that Fitbit's cash-rich balance sheet isn't being appreciated by investors. Nearly half of its market cap is backed by its cash and marketable investments, something that will help Fitbit through the red ink.  

Fitbit is placing a lot of long-term bets that won't pay off right away, but Citron still feels that the stock will bounce back now. Through takeover speculation has percolated in the past, it's hard to drum up a realistic list of potential suitors that would pay a healthy premium for the stock given its present funk. However, Citron is also upbeat about Fitbit's recent push into cheaper smartwatches, including its new Versa line that quickly sold a million units. Citron sees Fitbit's legacy business stabilizing at this point, with new digital health initiatives and its strong moat in wearable tech being appreciated by fellow investors sooner rather than later. The worst may not be over for Fitbit the company, but with the stock closing in on fresh 52-week highs, the worst definitely seems to be over for the investment.

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