One of this young year's biggest losers is Fitbit (FIT), the leading maker of fitness trackers that seemed to be all the rage when it went public last year. The stock surrendered 44% of its value last month after a brutal series of unfortunate events.
The year got off to a bad start for Fitbit. Let's go over the many things that went wrong even before last week's 15% slide.
- The annual Consumer Electronics Show was supposed to be a time for Fitbit to show off its latest wares, but the unveiling of Blaze -- its first smartwatch -- was greeted by skepticism. Outside of Apple (AAPL 0.20%) and pioneer Pebble, smartwatch efforts have generally fallen flat.
- At the same time, many likely and unlikely players threw their hat into the fitness bracelet market. Heightened competition breeds concerns of a price war.
- The accuracy of Fitbit's PurePulse -- its proprietary heart rate tracking technology -- was called into question.
This all happened during the first trading week of 2016, and things haven't gotten any better lately. Analysts have been tweaking their perspectives to adjust to the possibility of expanding margins and contracting market share.
RBC Capital Markets kicked off last week by lowering its price target on Fitbit from $33 to $28. It's sticking to its bullish rating, but a lower price target is still ominous. Even Citi rushing to Fitbit's side -- initiating coverage on Wednesday with a bullish rating and a $35 price target -- didn't do much in restoring the market's faith in the stock.
If it's any consolation, the fresh price targets out of RBC and Citi suggest upside of 69% and 111%, respectively, as of Friday's close. Wall Street has also stuck to its top- and bottom-line targets for 2016 through January despite the cascading share price. The disparity finds shares of Fitbit now fetching less than 15 times this new year's profit target.
Last year's hot growth stock has now become this year's forgotten value stock. Fitbit is now trading well below last June's IPO price of $20. The stock that peaked at more than $50 this past summer has gone on to shed more than two-thirds of its value.
The changing climate will test Fitbit. Apple has made fitness a major component of its Apple Watch, and that's something that Fitbit can't ignore. Gross margins have already been sliding, and that's not going to get any better as Apple and other push deeper into tracking and tabulating movements.
Revenue growth is also decelerating. That's a concern for growth stocks, but with Fitbit's forward earnings multiple now in the mid-teens, it's time to weigh its prospects as a value stock. It remains the market leader at a time when companies are starting to encourage -- and in some cases, subsidize -- the purchase of Fitbit bracelets to encourage healthier lifestyles. It's in the right place at the right time, and the stock is now at the right price.