Things aren't going Fitbit's (NYSE:FIT) way this year. The leading maker of fitness trackers saw its shares plunge 27% last week after the accuracy of its PurePulse heart rate tracking technology was questioned, rivals introduced new fitness trackers, and the unveiling of a new device failed to wow attendees at the annual Consumer Electronics Show. The weakness is carrying over into this week with the stock plunging another 12% on Monday.
The stock hit a new all-time low yesterday, but that's not saying much. Fitbit shares have only been trading for less than seven months. However, Monday's new low is notable. It's the first time that the stock is trading below its IPO price of $20.
There are plenty of broken IPOs out there these days, but it's been a quick and brutal fall from grace for Fitbit. The stock was a hot debutante in June, going on to trade north of $50 this past summer -- a few weeks after its market debut. Two months after its peak, the stock had fallen to the $30s on concerns of shrinking margins and looming competition. Now it has slipped into the teens.
Top-line growth has certainly lived up to its end of the bargain. Revenue more than tripled through the first nine months of last year when pitted against the same three quarters of 2014. The holiday quarter also appears to have gone well, judging by the popularity of the Fitbit application as a download through mobile app stores. However, a market brimming with fitness bracelets and smartwatches is eating away at Fitbit's markups. Gross margins clocked in at 47.9% in the third quarter, well shy of the 54.7% it was sporting a year earlier.
With tech companies and even athletic apparel and footwear companies introducing new fitness trackers last week at CES, it's safe to say that those margins aren't going to widen anytime soon. Fitbit was hoping to make a big splash during CES last week by peeling back the curtain on Blaze -- its first foray into the smartwatch market -- but the $200 device fell flat in its goal to impress.
Throw in complaints that Fitbit accounts were hacked and class action lawsuits accusing Fitbit's heart rate monitoring of being faulty and you have an all-around lousy way to kick off 2016. The silver lining here is that it isn't just the stock trading in the teens now. Fitbit closed on Monday fetching less than 19 times last year's projected profitability and just 17 times this new year's target.
Fitbit's going to have to prove that it can remain relevant in this rapidly changing climate if it wants to get its chin back up the $20 chin-up bar. The workout will hopefully include improving margins, fixed flaws, and a rich pipeline of compelling wearable tech. Fitbit's had a rough rookie season, but now the stock may be too cheap to ignore.
Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. 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.