Fitbit's (NYSE: FIT) stock price has dropped more than 60% in the past six months, with a particularly sharp plunge starting immediately after the release of the Fitbit Blaze at the Consumer Electronics Show on Jan. 4. The Blaze won't be available to consumers until mid-March, but there are already concerns that the product isn't differentiated enough for Fitbit to keep up with competition such as Under Armour (NYSE: UA), which released a new ecosystem of connected gear at the same time as the Blaze.

Fitbit's newest tracker released at CES and available to consumers mid-March. Photo: Fitbit.

Yet Fitbit's app downloads have been surging lately, and the company is likely to report 2015 earnings above expectations on Feb. 22. Does the poor initial reaction to the Blaze signal trouble for Fitbit, or is the stock oversold, creating an investment opportunity? Let's look at both sides.

The bearish view
1: The new Blaze is unimpressive.
Fitbit spent over $10 million on research and development in the first three quarters of 2015, compared with just over $1 million in the same period a year prior. This increase in spending produced the Fitbit Blaze, a smartwatch-like fitness tracker that seems to be only marginally better than Fitbit's previous devices. 

The Blaze has a colored touchscreen, automatic workout recognition and recording, call and text notifications, constant heart rate monitoring, and automatic sleep tracking. However, this "smartwatch" is still a closed system that doesn't allow for downloading apps, as compared to, for instance, the Apple (NASDAQ: AAPL) Watch. It also doesn't have GPS on the device like its predecessor, the Fitbit Surge, only "connected GPS" displaying the GPS function from a Bluetooth-connected smartphone. The colored touch screen is a step up, but nearly all of the basic features are found in Fitbit's previous products. 

2: Competition is ramping up.
Competitors such as Under Armour and Xiaomi are fighting for market share in this space. China's Xiaomi sells a basic wristband tracker for around $15. It has grown rapidly in China, the highest growth region for wearables trackers, in the past year and could disrupt Fitbit as the global market sales leader during 2016. 

Xiaomi's Mi fitness tracker,which sells for $15. Photo: Xiaomi.

Under Armour is the latest in a long line of companies to enter this space, but one that could be a huge risk to Fitbit. At CES, Under Armour launched its HealthBox, which includes a wristband tracker doing many of the same basic things as the Blaze (on-screen workout tracking, automatic sleep tracking, heart rate monitoring) but without the colored touchscreen. But Under Armour is differentiating away from just wristband trackers with other new, connected gear, including a chest-strap heart rate monitor that's supposed to be much more accurate than any wristband, a connected scale, run-tracking shoes, heart rate-tracking headphones, and soon, other connected apparel.

The most recent numbers from IDC, the main resource for tracking wearable shipments, reported Fitbit at about 22% global market share in Q3 2015, down from 33% the year before. Xiaomi's global market share jumped from 5% to 17% during the same time. These numbers don't include Under Armour, since its new wearables launched in Q1 2016.

The bullish view
1: Fitbit app downloads are surging.
According to app ranker AppAnnie, the Fitbit app has remained in the top three spots on the iOS app store in the health and fitness category for the past 365 days, most of that time as No. 1. On Christmas Day and the day after, it was No. 1 in the iOS app store overall.

Fitbit's app was the most downloaded app in the iOS app store from Dec. 25-27, 2015. Source: App Annie.

The preceding graph only shows downloads on iOS devices and only in the U.S., but this still gives us a good indicator suggesting that a lot of Fitbit products were given for Christmas and that we can expect some impressive sales numbers when Fitbit announces Q4 sales later this month. 

2: Fitbit stock looks cheap.
Fitbit is probably going to report impressive Q4 sales based on the number of holiday season app downloads. The company already raised guidance for the full year when it released Q3 earnings, and now even those raised numbers seem conservative based on holiday sales. Therefore, the stock now looks undervalued after these recent declines, trading at just 15 times forward-looking 2016 year-end earning estimates. 

Foolish final thought: Fitbit is a short-term play
If Fitbit does report impressive Q4 sales numbers in line with the recent app downloads, the stock does look attractive at these prices in the short term. However, over the long term, I'm not convinced Fitbit will be able to compete with other companies putting out either far more innovative gear, or similar gear for far cheaper. As of the recent release of the Blaze, Fitbit's lack of differentiation shows little reason to believe that Fitbit can slow its market share loss in this increasingly competitive space.