Is Fitbit a Good Buy?

Fitbit (FIT) announced third quarter ended September 30, 2015 total revenue of $409.3 million, up 168 percent year-over-year from $152.9 million during the same period last year and exceeding the consensus estimate from key investment analysts for third quarter revenue of $350.97 million. Going forward, the company forecasts fourth quarter of 2015 revenue to be in $620 to $650 million range and complete fiscal year 2015 revenue guidance raised in the range of $1.77 billion to $1.80 billion.

Growing at a fast clip

Fitbit declared third quarter of 2015 adjusted EBITDA of $85.0 million or $0.24 of diluted earnings per share compared to adjusted EBITDA of $44.3 million or $0.13 of diluted earnings per share in the third quarter of 2014.
Fitbit has provided earnings guidance for fourth quarter of 2015 and estimates adjusted EBITDA to be in the range of $80 to $100 million. For full year 2015, adjusted EBITDA is forecasted to be in the range of $345 million to $365 million.

The digital healthcare equipments manufacturer reported continued year-over-year growth in both its top and bottom lines primarily due to the expanding global demand for digital healthcare devices and growing healthcare awareness.

During the third quarter of 2015, Fit sold approximately 4.8 million connected fitness and healthcare devices that enabled it to register 37 times growth in its operating cash flows for the quarter to about $121.3 million as against third quarter of 2014.

Fitbit is developing a strong market position by uniquely introducing software updates for Charge HR, Charge and Surge in the holiday season for key devices. Fitbit is advancing the key apps for other major cultures and regions, like incorporating Baidu maps in China. The company is interestingly developing and adding the integration of Windows 10 which is expected to be supported on over 200 computing and mobile platforms.

The continued year-over-year sales growth for advanced technology devices being built by Fitbit is primarily attributable to the rising global health awareness which is driving people to stay healthy and monitor theit health all through the day by leveraging sophisticated Fitbit digital health monitoring equipments.

Importantly, Fitbit is strategically expanding its marketing campaign to over 20 countries during the second half of 2015 compared to just 8 in 2014. The company has added more than 20 fresh enterprise Corporate Wellness customers over the previous four months and expanding its international customer services capabilities.

Important moves

Fitbit and LA Marathon LLC recently declared a multi-year agreement starting with Skechers Performance for Los Angeles Marathon in 2016 to enable runners at each level with a unique experience and the required tools to coach smarter and achieve their objectives.

The promotional marketing activities of Fitbit are expected to drive down its free cash flows while growing its popularity among the enterprise customers which is bound to deliver long-term company profitability. The planned contracts with popular sports event such as, LA Marathon LLC would further popularize the company’s key health products and drive long-term sustainable growth.

Fitbit is witnessing tough global competition from several other key players in the wearable devices space such as, Garmin Ltd., Apple Inc., Samsung Electronics Co., Ltd. and Microsoft Corporation which all are offering differentiated wearable fitness devices and thus, eating into the Fitbit’s key market share.

What next?

The wearable devices market value from 2010 till 2018 is forecasted to grow manifolds from just $6.3 million in 2010 to a significant $12.6 billion in 2018 with the wearable devices believed to include innovative products like, the iWatch, Google Glass and other advanced medical technology equipments.

Therefore, despite facing tough competition from other key players in this field, Fitbit is believed to have a leading position to increasingly capture the vast untapped growth opportunity in the wearable devices category through the introduction of superior wearable devices.

Matthew McClintock of Barclay has maintained an “Overweight” rating on Fitbit with a target price of $49 and primarily driven by notable growth opportunities for the company to achieve the targeted costs for fresh introductions planned for 2016.

Mark Sue, a RBC analyst is extremely positive about the growth prospects of Fitbit and primarily encouraged by the company’s focus on delivering connected health to the customers looking for improving their fitness and being attracted by the company’s innovative and digital healthcare solutions.

A majority of the key investment analysts are extremely positive about the growth prospects of Fitbit mainly due to significant growth opportunities being supported by its healthy financial position.

Conclusion

Overall, the investors are advised to purchase equity in Fitbit, Inc. looking at the solid company’s financial position with significant total cash of $575.48 million and no debt thus, encouraging the company to make future growth investments. The profit margin of 9.94% seems healthy. The PEG ratio of 0.85 signifies notable company growth and comparable to the industry’s growth average of 1.44. However, Fitbit is somewhat expensive with trailing P/E and forward P/E ratios of 46.61 and 24.54 respectively compared to logical industry’s average P/E of 20.99.
Published on Dec 29, 2015
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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