Fitbit (FIT) Stock Is Fully Valued – Time to Move to the Sidelines, Says Analyst


Fitbit (FIT) is slated to announce earnings after market close on Wednesday, as some investors are preparing to hear good news on performance. Fourth-quarter performance is hugely important for Fitbit, as it is for other consumer product companies, as the holiday season normally provides the largest share of revenue. Furthermore, Fitbit is coming off a strong Q3, where it posted its first profitable quarter in some time. As a result, expectations are high for the company going into Wednesday.

However, Wedbush analyst Michael Pachter has downgraded his rating on Fitbit from Outperform to Neutral, after shares exceeded his price target of $6.50. (To watch Pachter’s track record, click here)

Even as he downgrades the company, Pachter is impressed by Fitbit noting, “Fitbit has captured a large share of both the fitness tracker and smartwatch markets, in spite of intense competition from Apple in smartwatches.” Pachter also thinks the company “has an excellent opportunity ahead with MedTech, particularly in collaboration with Google…[and] Fitbit may begin reporting meaningful contribution from MedTech as early as this year.” However, the analyst says this is all “fully priced into Fitbit’s share price,” which is keeping him on the sidelines.

Looking forward, Pachter says, “it is not yet clear how much Fitbit Care and related initiatives are contributing to Fitbit’s revenue and profitability, and we anticipate guidance for FY:19 to include modest revenue and earnings growth without providing any detail on healthcare.” The analyst expects an “analyst day in the coming months,” where the company will share “greater detail with analysts and investors.” Nevertheless, Pachter thinks “Fitbit has a competitive advantage in healthcare, in that it is platform agnostic. Fitbit works just as well with an Apple OS as with Android and Microsoft, and as an enterprise solution, offering compatibility with any platform is necessary.”

On Fitbit’s financial performance, Pachter reiterates his FY:18 estimate for revenue of $1,505 million, for adjusted EBITDA of $(41) million, and for non-GAAP EPS of $(0.27). He also maintains FY:19 estimates for revenue of $1,540 million, for adjusted EBITDA of $(4) million, and for non-GAAP EPS of $(0.17), as he awaits more clarity on the potential impact of Fitbit’s burgeoning healthcare business.

Though Fitbit is widely known as a popular consumer product, the company is actually relatively small compared to other publicly traded companies,. Fitbit’s market cap is valued at $1.66 billion and has an average trading volume (3 month) of less than 5 million shares per day. Over the past three months, TipRanks analysis shows only one analyst rating on the company. However, one-year data shows seven analyst ratings with a consensus Hold view.

Ultimately, the word on the Street points to a sidelined majority on Fitbit. In the last 12 months, the wearable device maker maker has landed 3 ‘buy’ ratings vs. 6 ‘hold’ and 3 ‘sell’ rating. With a slight downside potential, the stock’s consensus target price stands at $6.43. (See FIT’s price targets and analyst ratings on TipRanks)

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