Fitbit Will Go Down Like GoProFIT).
The primary reason why I dislike moat-less momentum stocks is that they go public just to make the insiders and the underwriters money at the cost of regular investors.
Fitbit business, like GoPro’s, is built on a one-hit wonder product and the stock will eventually crash just like GoPro. While I’m not arguing that the wearable device market is not growing, but Fitbit has no significant competitive edge over its peers that will help it grow into its present valuation.
Fitbit is currently trading at over 57x earnings. The stock is very expensive and it seems like investors haven’t priced in the competitive concerns. Fitbit has to compete against Apple Watch. Apple Watch is undoubtedly a better product that what Fitbit has to offer and while the stock has fallen considerably from all-time highs, I think the short story is still intact.
That’s not all. The company faces competition from Xiaomi in China. Xiaomi’s sales are pretty much limited to China, but the company looks set to outperform Fitbit in the region in the long-run. In Europe, Fitbit faces tough competition from award-winning wearable-makers like Polar, Suunto, Garmin. All in all, the wearable market is growing and there’s no way all these big companies will allow a newcomer like Fitbit to establish itself as the market leader.
In the long run, the competitive pressure will take its toll on Fitbit and it will plunge in the same way as other momentum stocks. GoPro resembles Fitbit very closely and I wouldn’t be surprised if Fitbit follows its footsteps and falls to below $20 in the future.
Even if everything goes exceptionally well, Fitbit will struggle to grow into its present valuation. The company is trading at 57x trailing earnings and has a P/S ratio of over 5. For a momentum company whose business is built on a one-hit wonder product, the stock is very expensive and is a definite short at the moment.
Published on Dec 9, 2015By Ayush Singh