Barclays analyst Matthew McClintock upgraded FitbitFIT shares from neutral to buy with a price target of $49. Following the upgrade, Fitbit was up 3.16% to $28.72.
Why the Upgrade?
This activity tracker and fitness device maker went public on Jun 18 at $20. It touched its all-time high on Aug 5 ($51.90). But due to intensifying competition and profit erosion concerns, the stock has tumbled nearly 30% in the last one-month time frame.
However, McClintock is of the opinion that the fall is "unjustified" and believes that Fitbit has shown strong growth in spite of increasing competition concerns.
The analyst is positive about its impressive performance at the start of the holiday shopping season. He believes that the company is well poised with significant catalysts for the future including holiday season sales, the CES trade show, new product offerings and enterprise wellness alliances.
McClintock further backs the upgrade saying that Fitbit is the fastest-growing consumer firm at 140%+ revenue growth year over year so far in 2015, which justifies the current valuation levels of the company.
Also, fitness wearables have seen a strong start this holidays and the analyst's retail channel checks reveal that Fitbit is the most preferred brand.
In fact, in a press release on Black Friday, Target Corp. TGT specified that the Fitbit Charge HR was one of the most popular gift items this season. In addition, Best Buy BBY said that buyers purchased twice as many wearables, including health and fitness trackers, on Thanksgiving and Black Friday compared with last year.
McClintock further believes that Fitbit's annual revenues can increase by at least 40% over the next several years. His estimates are however based on the assumption that the overall category will grow rapidly both in the U.S. as well as through geographic expansion.
Its sales have also impressed analysts at Stifel Nicolaus who have also become positive about Fitbit. They believe that Fitbit has the potential to post better-than-expected results in the fourth quarter.
Fitbit enjoys a leading market position and is a global brand for wearable activity tracking devices and its recent performance proves that.
It, however, faces competition in both the high and low end product range. On the high-end front, it competes with the Apple AAPL Watch, which starts at $349. Also, many big manufacturers are developing connected devices on Google's Android operating system. On the lower end, fitness-tracking devices from Jawbone, Garmin Ltd and Xiaomi also pose tough competition. Most recently, Fossil Group has also joined the ranks.
Competition is on the rise and it might compel Fitbit to slash prices to maintain market share. This in turn can take a toll on its margins.
But the introduction of compelling products and addition of innovative features will help it stay ahead of its competitors, if not keep them at bay.
Fitbit currently has a Zacks Rank #2 (Buy).