Does Fitbit Fit in My Portfolio?

Wellness is big business in America, and health based companies have taken Wall St. by storm. But for one company’s stock, the storm is nothing but clouds and rain. I’m talking about Fitbit, Inc (NYSE: FIT). But will the clouds eventually clear for this company?

Fitbit is a leading manufacturer of wearable fitness devices that track things like calories burned, sleep metrics, steps taken, distance, heart rate, and other things. Many have GPS and can connect to your phone to show text messages, etc. Most of them fit on your wrist like a watch, and I believe that all of them can connect to your smart phone via an app that will display and analyze your health and workout statistics.

Now I’ve never used one of these things, but I got interested in the company when several friends and a few people I work with started using them. Then I started noticing them in stores, a LOT of stores. Stores you wouldn’t necessarily associate with ‘wellness electronics’. These things are everywhere. I got really interested in the company when I heard about their corporate wellness business.

Fitbit doesn’t just make these devices and sell them through their website and various retail outlets. They reach out to companies and make agreements to provide large numbers of units that the company in turn provide to employees. Many companies go with the more basic, low cost products, but some allow employees to pitch in and upgrade to more expensive units. Some companies even subsidize the cost of the more expensive units. Last year Target (NYSE: TGT) gave 335,000 of its workers a Fitbit device. Other corporate accounts include BP (NYSE: BP), Bank of America (NYSE: BAC), Time Warner (NYSE: TWX), and GoDaddy Inc. (NYSE: GDDY). There are plenty more. This business makes up nearly 10% of Fitbit’s revenue.

When I think of the opportunity in corporate wellness, I see dollar signs. Think about the benefits to the companies involved. They are providing a benefit that many employees will see as a positive. And what about health care costs? Encouraging healthy lifestyle choices can only be good for health insurance costs. Who isn’t worried about the cost of health insurance these days? I know my personal costs have gone WAY up in the past year.

Fitbit was founded in 2007, and went public in the summer of 2015 for $20 a share. Fitbit bulls are all about growth growth growth. In the short time the company has been public, it has proven the potential to grow. Growth in the short term is not really in question. And by all accounts Fitbit has had an awesome holiday season. So why did the stock rocket up to nearly $52 dollars post IPO, only to drop down to $16 bucks a share where it’s currently trading? Well, there are some issues. (There are always issues.)

One problem is the number of companies that want to get into the wearable fitness tracking business. There are some BIG names that want a piece of the pie, and a few that investors are wary might jump in as well. Names include Under Armor (NYSE: UA), Apple (NASDAQ: APPL), Nike (NYSE: NKE), Samsung, and about a zillion others. It makes sense; if there is money to be made, these companies want in too. Fitbit is THE name in the space at the moment, but will that be the case in 2 years? 3 years?

Another concern is Apple. While listed as a competitor above, this is a slightly more fundamental concern for all companies involved. What’s to prevent this entire industry from simply becoming an app on everyone’s iPhone? Sure it’s a little more complicated than that, but Apple already makes a watch. Maybe Apple simply uses its enormous resources and customer base to basically incorporate this entire industry into its already large ecosystem.

On January 5th, Fitbit stock fell over 18% after the company introduced its newest product, the Fitbit Blaze, a ‘smart fitness watch’. Invertors were not impressed. The market is apparently comparing Blaze to Apple’s watch. Investors seem to think that Fitbit is taking on Apple with a product that has less features. Blaze has no internal GPS, can’t call or reply to texts, and can’t support third party apps. While Blaze is much cheaper, people feel that it won’t compete with Apple’s product. Fitbit bulls maintain that it’s not really supposed to compete with Apple. I kind of agree, but I wouldn’t be surprised if Blaze is a disappointment compared to some of Fitbit’s other products.

Another problem is a class action lawsuit claiming that the heart rate monitoring technology Fitbit uses is inaccurate, especially at higher heart rates. It’s a little early to tell if the lawsuit will go anywhere, but it’s certainly a concern. Investors who’ve lost money in Fitbit are also seeing an opportunity for litigation.

Many articles out there now compare Fitbit to GoPro (NASDAQ: GPRO). Both electronic companies were high fliers post IPO, both face severe competition, and both are having a tough time on Wall St. Both intend to drive sales and awareness via social media. (Becky ran 3.4 miles today and burned 500 calories, what have YOU done?) Some say that Fitbit is destined to fall as hard as GoPro. Fitbit, even at $16, is still priced for WAY, WAY more growth than GoPro when you look at their P/E multiples. If that growth is called in to question on the same scale as GoPro’s has, Fitbit could see mid single digits easily. That’s a sobering thought right there.

So where does this leave me, your average investor and amateur blogger who’s interested in the company? I can’t pretend to have any long term clarity on where this industry is going. I believe the wellness space will be strong for a long time, but wrist based wearables that are primarily fitness devices? I have no idea. I do believe that for the next couple of years, at least, Fitbit will dominate this space. I like the company based on that, but I am cautious.

As I write this Wednesday night, the 27th of January, Fitbit closed at $16.05, very close to its all time low of $15.52 from a week ago. Of course I’d like to get in lower than that. The company should be reporting earnings soon. Even if the earnings are good and the stock pops, I bet there’s a good chance that a lot of the burned investors use that as an opportunity to sell. So maybe it drops immediately after said pop, and people get even more frustrated and sell. Or it may simply continue tanking before earnings. I’m looking to become VERY interested in this company at the $10 to $12 level. Concerns over competition or the latest product might push it that low. A lack of execution would probably push it a lot lower. Investing involves risk, who knew?

Of course it’s one thing to have these scenarios in my head, but it may never reach my price. It might go straight to 50 again without me… and that’s ok. While I like the company, I’m not comfortable with the current price. Most things are attractive at a certain price, and for Fitbit, I have mine.

As always, feel free to look at my portfolio and see how I’m doing. Usually I own or plan to own stock in many of the companies I write about. Please READ MY DISCLAIMER. Make your own decisions, do your own research, and never rely on any single source for information. I am not a financial professional; do not rely on me as such.

Thank you,
Michael, the Stock Picking Bartender

New Year, More Focused Investor/Blogger

So it’s a couple of weeks into 2016, time for the ‘new year, new me’ jazz. First let me go over some of the slight changes made to the blog. The first is pretty small, but informative. In the portfolio section I now include a weekly chart that shows my progress verses the market. It’s a fairly crude Excel chart, but it gets the point across. As of the moment, I’m winning. I’ve lost less money than if I’d just ‘bought the market’. Yay… I guess. But as a value investor I expect to have losses starting out, so I’m not too concerned. Take a look at it to see how I calculate my performance vs. Mr. Market.

Another change is the ‘Trades’ section of the website. When I write a blog article (blarticle?) I like it to have some meat to it. It might be a write-up of a company I feel is undervalued, or a full going-over of all my positions. Something well thought out, a couple of pages of financial and literary genius. That’s what I strive for, so those blog articles don’t come out every day (or every week for that matter). When I have some thoughts I simply want to jot down, or commentary on a trade I’ve just made, I now have somewhere to put it. Check out the ‘Trades’ section for these slightly more off-the-cuff pieces.

As for a quick portfolio update, here are the ones worth mentioning. Check out my portfolio for all the numbers and positions. I have written articles about most of the companies I mention below, feel free to check them out.

Chesapeake Energy (NYSE: CHK) is still kicking my butt. Were it not for my poorly timed investment here, I’d be patting myself on the back, declaring victory against the market, waiting for a call from CNBC to have me on to discuss my techniques.

I’m not so sure I have much confidence left in Daktronics (NASDAQ: DAKT) anymore. It seems like the company’s earnings aren’t going anywhere, and the position has moved against me. I bought in twice, at $10.10 and $8.30. It’s now in the mid 7’s. I’m not inclined to buy more down here, not out of fear, but because I’m not convinced the company is going anywhere anytime soon. They report earnings in Febuary, and the analyst estimates seem pretty low, so a good number might make the stock pop. I’m not sure yet, but I’m starting to consider dumping this one on some strength. I think there are better opportunities out there.

I sold First Solar (NASDAQ: FSLR) in December, and haven’t really talked about it other than updating my portfolio. Of course now I have a section on the site specifically for that. But why did I sell? I bought First Solar in July for $45.50, and sold it in mid December for $63.52, for a nearly 40% gain. Nice, to be sure, but a little bitter/sweet. There’s a story behind that. As First Solar got near $60, I put in a sell order around $62, as that was close to the top of its ‘range’. I figured that without any great catalyst, the stock would do what it usually seemed to do, and come down to around $50, where I would buy it again. Great plan huh? But then the government decides to extend the solar tax credit that would be falling off a cliff at the end of this year, and solar SOARS!!!! My limit order to sell got filled at $63.52, and FSLR reached a tad over 72 a couple of weeks later. If I were a mystic financial guru and sold it at 72, my gain would be darn close to 60%. But fortunately FSLR is now back below $59. I have an order to get some in the mid $50’s. I really like this company, so I’m crossing my fingers.

I bought into Ambarella (NASDAQ: AMBA) a couple of days ago, and yesterday GoPro (NASDAQ: GPRO) announced job cuts and weak sales, so I may get a second buy in sooner than expected. Those following along might remember that I was trying to get AMBA at around $47 a few months ago, before it shot up to the mid $60’s. This market and GoPro fears allowed me to get in at $42.25.

I am on the verge of buying Energy Transfer Equity (NYSE: ETE). Any significant weakness from here on out and I think I’m in. If I can start accumulating in the low 7’s, I think that I’ll thank myself later.

As for what I’m keeping an eye on, I’m following Potash of Saskatchewan (NYSE: POT) and Fitbit Inc. (NYSE: FIT). I’ll probably do a write-up of one or the other soon. I also like Skechers U.S.A. Inc. (NYSE: SKX), both the product and the chart, though it has a ways to go down before I’d think of buying.

I hope you join me on this journey in the new year. I’m looking forward to it.

As always, feel free to look at my portfolio and see how I’m doing. Usually I own or plan to own stock in many of the companies I write about. Please READ MY DISCLAIMER. Make your own decisions, do your own research, and never rely on any single source for information. I am not a financial professional; do not rely on me as such.

Thank you,
Michael, the Stock Picking Bartender