Wedbush analyst initiated Fitbit Inc (NYSE:FIT) shares with an $18 price target, immediately sending shares up 3.2%. But since they barely moved in extended trading it’s apparent that investors aren’t going overboard.

The analyst pointed to some factors that could drive future growth, including co-branding opportunities, accessory sales and corporate wellness opportunities. So let’s take a look at each of these.

The Question of Co-Branding

The Fitbit brand is growing in popularity as the company’s brand awareness campaigns appear to be generating results. Despite Apple’s entry into the segment, Fitbit sales have held up relatively well. And increasingly, the analyst feels, the brand is becoming a common noun with the words “fitness tracker” being replaced with “Fibit.”

Independent market research from IDC indicates that this theory could have merit. In its wearables market tracking report published on May 16, the research firm says that Fitbit’s “well-segmented portfolio, pricing strategy, and a strong brand” have played an important role in establishing its leading market position. It estimates that Fitbit’s newer Blaze and Alta products (“a new chapter of fashion-oriented fitness trackers”) sold a million units each, while the older Surge, Charge, Charge HR and Flex products declined.

Fitbit saw shipments grow 25.4% in the first quarter. Xiaomi saw much stronger growth based on its strength in China. Apple and Garmin were relatively distant third and fourths with single-digit market shares.

The fact that it is able to sell new products and/or get its customers to upgrade is also a sign of strong brand awareness.

Fitbit already resorts to a kind of co-branding, since its products are better known as Fitbits than by their individual names. This makes it difficult for competing brands to encroach on its market share even when they have a couple of strong features. Co-branding with competing products doesn’t seem like a good idea at this stage, but is an interesting thought if you consider other wearable products coming on the market.

For instance, Benzinga recently wrote about a number of wearable products for babies (devices for tracking babies’ heart rates, pressure, oxygen levels, thermometers, pacifiers, etc). Co-branding with market-adjacent products could help it grow market share.

The Question of Accessory Sales

Fitbit tells us nothing about accessory sales, but one would assume that there would be some correlation with Fitbit device sales. So continuing strength in the main product lines should be positive enough for growth in accessories. Although, accessories are unlikely to ever grow into a significant percentage of sales, so we will probably never have more granularity on numbers. We can of course theorize about it.

The Question of Corporate Wellness

Corporate wellness makes perfect sense, and the company has actually made some progress on this front. The sales strategy here is that if companies subsidize/encourage employees to buy fitness devices/lead more healthy lives, corporate healthcare costs will go down.

It may sound like a tough sell, but companies are clearly buying it: Fitbit currently has over a thousand enterprise customers, of which Target is one of the better-known. The company’s growing mindshare will continue to help on this front.

Will Brand Strength Beat Product Quality Issues?

The accuracy of heart rate readings by Fitbit’s PurePulse heart rate monitors used in its Fitbit Blaze, Fitbit Charge HR and Fitbit Surge bands has recently been questioned by two groups.

The first was a Ball State University test in Indiana that included journalists at NBC-affiliated TV station WTHR. The study found that the Fitbit Charge HR recorded an average heart rate error of 14%. Fitbit said its devices “are designed to provide meaningful data to our users to help them reach their health and fitness goals, and are not intended to be scientific or medical devices.”

More recently, the California State Polytechnic University, Pomona tested heartbeats of 43 healthy adults during rest and exercise, including jump rope, treadmills, outdoor jogging and stair climbing using the Fitbit’s PurePulse heart rate monitors. The test sho

wed inaccuracy up to 20 beats per minute during more strenuous workouts. The study was commissioned by Lieff Cabraser, the law firm behind a class action suit targeting the Fitbit Blaze, Fitbit Charge HR and Fitbit Surge. Fitbit called this test “biased,” “baseless” and lacking in “scientific rigor.”

While adverse test results have created some negative sentiment for Fitbit, it’s worth remembering that these consumer health monitoring devices are not priced the way an advanced scientific instrument might be. They should be treated as utility items with reasonable accuracy much along the lines of accucheck devices for measuring blood sugar levels.

This level of accuracy is perfectly acceptable and useful for most people and only professionals or geeks/fans would possibly want more. So Fitbit shouldn’t be in any trouble as long as it doesn’t make false claims about its products.

Final Words

Fitbit has a Zacks Rank #3 (Hold) and its already-rich valuation could limit upside at these levels. But this is a stock worth watching for the following reasons:

The company has topped estimates in each of the last four quarters at an average rate of 167.9%. The Zacks Growth score is A, indicating that there are solid growth prospects.

Despite the fact that it’s a relatively new company, Fitbit generates profits, has a leading share of a fast-growing market, has a well-articulated growth strategy, steady flow of new products and very strong international growth prospects because of low penetration levels. Besides, even if competition continues to increase because of the commodity nature of the products, low penetration levels mean we shouldn’t worry about it yet. In the long run, its first mover advantage may mean stronger brand value and protect it from downside risk.