This Just In: Upgrades and Downgrades

Since hitting a high of more than $50 back in August, shares of fitness-tracking specialist Fitbit, (FIT) have taken a real tumble. Down more than 45% from their highs, and trading below their opening price on IPO day back in June, Fitbit seems to have few fans on Wall Street today.

But it does have one fan: Bank of America/Merrill Lynch.

On Tuesday, this investment banker stepped up to the plate and called a bottom  on Fitbit. Arguing that Fitbit's gaining traction in corporate space, that competitors are "underwhelming," and saying the stock's sell-off has been overdone, BofA's analysts at Merrill Lynch announced today they're upgrading Fitbit shares to "buy" and assigning them a $36 price target.

If BofA is right about that, it means that Fitbit shares could yield a profit of as much as 23% over the next year to investors who buy today. But is BofA right?

Let's go to the tape
In their commercials on TV, investment bankers are quick to tell investors that "past performance is no guarantee of future success." And yet, it's hard to imagine a better gauge of an analyst's stockpicking skills than its record of picking winners in the past. So let's take a quick look at a few picks BofA has made in the technosphere in the past -- and see if we can find a clue or two about Fitbit's prospects for the future.

Generally speaking, BofA is one of Wall Street's better investment bankers. According to our stats on Motley Fool CAPS, where we've kept track of BofA's picks and pans for nearly a decade now, BofA ranks in the top 5% of investors worldwide. Its record in tech is particularly good on the software side of things -- somewhat less so when it comes to hardware.

How does this play into BofA's recommendation to buy Fitbit? It's hard to say. Fitbit's products are clearly computer hardware (an area where BofA does not excel) -- but they depend on software to run (where BofA does excel). Similarly, there are pluses and minuses to Fitbit's own stock.

On the plus side, Fitbit shares today cost barely half what they cost at their "top" back in August. On the minus side, though, Fitbit shares are hardly cheap. Calculated from the most recent data provided by S&P Capital IQ, Fitbit shares currently cost nearly 40 times trailing earnings, and more than 52 times trailing free cash flow. Analysts who follow the stock predict that Fitbit will grow its profits at about a 30% compound rate over the next five years.

That's fast, no doubt. But it may not be quite fast enough to support a 40x earnings valuation (much less a 52x FCF multiple). This, one imagines, is a big reason why investors polled on Motley Fool CAPS, even if largely positive on Fitbit's technology, are leery of its stock -- and give Fitbit a rating of just one CAPS star, indicating they expect it to underperform the stock market.

A better way to make money
On balance, I have to side with the CAPS community on this one, folks. Fitbit makes a peerless pedometer, no doubt. But it's stock just isn't worth the trip. If you're looking for a better bargain, I'd humbly suggest you look back over BofA's record, and consider one of the stocks that has worked well for it in the past: Intuit (INTU -1.37%).

Priced at an apparent P/E ratio of 76, and pegged for just 15% growth on S&P Capital IQ, at first glance, Intuit looks like even less of a bargain than Fitbit. But looks can be deceiving. Last year, Intuit generated positive free cash flow of $1.36 billion -- nearly four times the stock's reported GAAP earnings. As a result, Intuit's price-to-free cash flow ratio is less than 20. Net out cash in the bank, and Intuit's P/FCF ratio drops below 19. So between the stock's 1.2% dividend yield and its 15% growth rate, that gives Intuit a total return ratio much closer to 1.0 than what you'll find at Fitbit.

As stocks go, Intuit is probably a better place to put your money into it, than is Fitbit.