Stifel's Bearish Stance On Fitbit No Longer Applies, But Concerns Remain

Shares of Fitbit Inc FIT have lost more than 13 percent over the past year and are down nearly 85 percent since its 2015 initial public offering. While the company isn't out of the woods just yet, at least one analyst no longer sees the bearish case for the stock moving forward.

The Analyst

Stifel's Jim Duffy upgraded Fitbit's stock from Sell to Hold but with a price target lowered from $6 to $5.50.

The Thesis

Fitbit's path to profitability remains unlikely in 2018 and the longer-term profile of the smartwatch and fitness tracker company remains a concern, Duffy said in a note. The stock's nearly 25 percent decline since the end of November, however, now creates a more balanced risk to reward profile. Specifically, the company holds more than $3 per share in cash and the Fitbit brand remains relevant which will offer a "backstop to valuation."

Fitbit's Charge 2 watch "led consumer demand" during the 2017 holiday period, but the Ionic smartwatch saw a "more muted" launch. As a whole, the research firm's channel partners exited the holiday season in a better inventory position on a year-over-year basis, which implies a "favorable" start to the first half of 2018.

Duffy's revised $5.50 price target is based on a 0.4 times multiple TEV/Sales on a revenue estimate of $1.55 billion.

Price Action

Shares of Fitbit were trading lower by 0.2 percent Wednesday at $5.18.

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Image Credit: MorePix (Own work) [CC BY-SA 3.0], via Wikimedia Commons