Don’t Bother Chasing the Most Recent Fitbit Inc. Stock Rally
It’s been a bumper month for fitness tracking tech firm Fitbit Inc. (NYSE:FIT). FIT stock has been punished by investors over the past year despite the firm’s efforts to revive its image and reignite demand for its gadgets.
While it looks painfully clear that FIT’s flagship activity trackers are headed the way of the dodo, the company’s efforts to focus on breaking into the healthcare space appear to be attracting attention in a good way.
FIT stock has made its way more than 30% higher over the past month due in large part to a bullish note from Citron Research claiming that the company’s bets on the healthcare space are likely to start paying off within the year.
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Health Push
Fitbit has spent the past year working to push its product as a medical device rather than a trendy gadget for health-conscious consumers. While its competitors have been praised for their well-received smartwatches, FIT has been largely overlooked because the devices have fallen out of favor.
However, the company has been able to partner with some U.S. insurers to lower people’s healthcare costs by sending their activity data to the insurance company in exchange for compensation. FIT’s partnership with UnitedHealth Group has saved participants in the program up to $1,500 per year.
Not only that, but Fitbit has also become a part of the Food and Drug Administration’s pre-certification pilot program, which could potentially lead to the company being able to develop software products that are eventually approved for use in medical environments.
The possibilities from that perspective are endless, but FIT has been focusing on better understanding and treating sleep apnea.
Win/Win for Fit Investors?
While I agree with Citron’s Andrew Left that the medical potential for FIT has been largely overlooked, it’s important to note that FIT isn’t the only company working toward becoming more than just a trendy smartwatch.
In fact, the majority of Fitbit’s major competitors including Apple Inc. (NASDAQ:AAPL) and Samsung Electronics Co Ltd, have also been chosen to participate in the FDA pilot program. That means that just like in the smartwatch space, FIT will face stiff competition in the healthcare space as well.
Children’s Health
FIT investors are also praising the firm’s efforts to push a children’s activity tracker called Ace. The device has been paired down to create a simpler activity tracker that is cost effective and doesn’t need to be charged as often.
With childhood obesity rates still a major concern in both the U.S. and Europe, Fitbit’s Ace could be well received among parents- but I don’t think it’s the lifeline FIT needs. The fact is that Ace is still an activity tracker, which many if not most agree are quickly falling out of favor.
Plus, although parents might be interested in tracking their child’s movements, it could also become a distraction for kids.
The Future for FIT Stock
Right now, the medical side of Fitbit’s business makes up only a fraction of the firm’s overall revenue, so the bets it’s made in the space have done very little to move the needle up until the Citron note drew attention to them.
A lot of FIT’s success in the medical sector rides on the company’s ability to get FDA approval for its software or devices. Until then questions about accuracy might keep the company from making the turnaround it’s hoping for.
However, as Citron pointed out- there is a glimmer of hope for Fitbit. If its bets on the future of medicine and health insurance pay off, the FIT stock turnaround could finally materialize. The company does have a healthy pile of cash to help fund it’s new strategy and so far things are looking up.
Not only that, but as FIT starts to make headway into medicine the company is likely to become an even more appealing takeover target. This is certainly a long shot, but it’s an outcome investors should be considering.
The bottom line for investors considering whether or not to jump on the FIT stock bandwagon is whether or not they believe in the company’s future growth potential in the medical space.
I think we can all agree that stand-alone activity trackers are on their way out and although Fitbit’s foray into smartwatches was commendable, it appears to be no match for established operating systems like Android or iOS.
As of this writing Laura Hoy was long AAPL.
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