Fitbit Looks Like a Dead Company Walking

Anyone who has been following my article knows about my extremely bearish stance on Fitbit (FIT). Despite the fact that Fitbit has fallen over 60% from its 52-week highs, I think the stock still remains overvalued. I don’t really recommend shorting shares, but I think Fitbit is one of those stocks that you can short right now.

Competition is increasing swiftly

There are many segments that are at their infant stage and rising gradually, and the Fitness tracking device segment happens to be one of them.
But this does not mean all fitness tracking device manufacturing companies will gain advantage from this trend.

It is well known that the electronics industry contains lots of players in it, with many firms that have failed to meet public expectations and deliver strong results to stockholders. In the case of Fitbit, the primary reason why the company cannot gain much advantage from this rising trend is the presence of huge competitors like Apple, Under Armour, etc.

In the most recent quarter, Fitbit shared strong results, as the revenue surged 50 percent year-over-year to $505 million. But on the other side, it signifies a considerable slowdown from 210 in the Q1 FY15. Moreover, the company’s next quarter guidance signifies a massive drop as compared to Q2 FY15. Considering the company’s low revenue base, it is a very inadequate figure.

Despite beating consensus estimates, the main thing for investors is to worry about is Fitbit’s future and sustainability of its business model. Stockholders are also severely worried about gradually decreasing earnings, as the company is escalating investments in marketing, sales, and R&D, and this has adversely affected the earnings.

It is unquestionable that Fitbit is a front-runner at the present stage, but it is highly likely that the situations will change very soon as many small-cap companies are also offering various low priced and innovative products which will certainly increase the competition. Moreover, Under Armour recently launched HealthBox Kit, available in the market for $400, and claimed that is the second best-selling product in its product portfolio.

Apart from these, tech giant Apple is also planning to introduce a fitness tracking device which will focus on the lower end of the market. As soon as Apple releases lower priced product, it will be very difficult for Fitbit to sustain its leading position in the market.

All in all, considering all the factors mentioned above, investors can consider shorting Fitbit. If shorting isn’t for you, I would suggest to stay as far away from the stock as possible as Fitbit is likely headed in the same direction as GoPro.
Published on Jun 13, 2016
By Prudent Investor

Copyrighted 2020. Content published with author's permission.

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