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3 Reasons to Be Bullish on Fitbit Inc Stock

Fitbit Inc (NYSE:FIT) stock is regaining some of its strength. Since August, the FIT stock price has gone from $5 to $6.97.

3 Reasons to Be Bullish on FIT Stock
3 Reasons to Be Bullish on FIT Stock

Source: Shutterstock

Now it’s true that the year-to-date return for FIT stock is still -7%. And of course, the performance since its IPO is a horrific -80%.

And hey, the punishment has been well-deserved. The company has had a tough time fighting against tough rivals like Apple Inc. (NASDAQ:AAPL), Samsung Electronics Co Ltd (OTCMKTS:SSNLF), Garmin Ltd. (NASDAQ:GRMN) and Xiaomi.

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At the same time, FIT has had periodic issues, which have resulted in product recalls. Oh, and during last year’s holiday season, the product line failed to excite consumers. The result was a steep dive in sales and ballooning losses.

Grim, right? True. But despite the company’s troubled past, I still think there are encouraging signs for a turnaround. It’s been choppy and will likely take time. But for patient investors, FIT stock could be an interesting opportunity.

So let’s take a look at three reasons why.

FIT Stock Advantage #1: Product Refresh

FIT has made a bold bet on its Ionic smartwatch. And so far, it looks like it has gotten off to a promising start (the device was launched in August).

Some of the features of the device include: a battery life of 4+ days, an Sp02 sensor, a top-notch GPS system and access to third-party apps, such as those from Yelp Inc (NYSE:YELP) and Pandora Media Inc (NYSE:P). In fact, based on Amazon.com, Inc. (NASDAQ:AMZN) ratings, the Ionic smartwatch has received the best reception in Fitbit’s history.

But the company has also built its own app, called Coach. The focus is on using the fitness data to provide personalized audio instruction, such as with recommended exercises.

Note that FIT already has an engaged online community, which is a competitive advantage. According to CEO James Park:

“Beyond data, as the largest health and fitness social network, our community is a key differentiator and creates a barrier to hardware commoditization. Fitbit remains the number one health and fitness app on iOS and Android in the U.S., with the largest social fitness network. There is a strong network effect since people want to be where their friends, family and colleagues are located. Since launching the feature in March 2017, more than 15 million users have utilized our Feed, sharing and viewing over 1.1 billion posts.”

FIT Stock Advantage #2: Healthcare Market Opportunity

The Ionic smartwatch is already showing potential for making inroads into the massive healthcare market. Note that the device has been shown to detect sleep apnea as well as atrial fibrillation, based on clinical trials. Such medical conditions can lead to severe chronic diseases.

No doubt, it can be tough to get a foothold in the healthcare market, as the sales cycles can be long and the regulator process onerous. So FIT has been aggressive in forming partnerships, such as with Medtronic, UnitedHealth Group Inc (NYSE:UNH) and DexCom, Inc. (NASDAQ:DXCM).

And here’s something else. The federal government selected Fitbit as the first wearable for the All of Us Research Program, which is an ambitious program to ultimately enroll more than 1 million people for researching diseases. In this first stage, the initiative will use up to 10,000 Fitbit Charge 2 and Fitbit Alta HR devices.

FIT Stock Advantage #3: Balance Sheet and Valuation

FIT has a liquid balance sheet. The company currently has $659 million in the bank and no long-term debt. What’s more, FIT posted positive cash flows of $5 million in Q3, compared to a $46-million loss in Q2. It is important to keep in mind that the company has been engaged in a streamlining of its operations during the past year, which has included layoffs.

FIT stock is also trading at an attractive valuation. Consider that the price-to-sales ratio is only about 0.99X. In fact, when stripping out the cash, the ratio is at 0.6X. In other words, if the turnaround continues to gain ground, there should be lots of room on the upside for the FIT stock price.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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