Is Fitbit Stock Worth Its High-Stepping Valuation?

fitbit-stockLast month, I wrote about the impending initial public offering of Fitbit (NYSE: FIT), which makes the wildly trendy wearable fitness trackers. The device lets you track a host of metrics related to your health and exercise level – everything from your standing heart rate to the steps you walk in a day.
At the time, Fitbit was set to go public somewhere in the high teens, which would have put its valuation in the $4 billion range. That seemed a lot for what I couldn’t help seeing as a bit of a one-trick-pony.
Well, as anyone who watches the stock market at all has seen, the IPO price was raised a couple of times as IPO day approached, finally reaching $20. Last week in the IPO, Fitbit stock wound up opening on the secondary market well above that price, at $30.40, and closed its first day of trading just shy of $30, for a valuation of $6 billion.
If Fitbit looked expensive at $4 billion, well, it is even more expensive now.

A Health Platform?

To be sure, whenever a company goes public in a closely watched and wildly successful IPO, there is a lot of remorse from those watching from the sidelines. It’s never 100% possible to predict which IPOs will sustain and extend their early gains.
Fitbit has worked hard to make the case that it is not just a device maker but a platform for giving individuals the tools to live healthier, fitter lives. That’s an ambitious and important goal, and one that, if executed, could ultimately make Fitbit worth a lot more than $6 billion.
Still, I maintain that Fitbit hasn’t shown us how they are going to get from making something that’s more of a toy to something that’s a fixture of health care. Buying these shares was a gamble pre-IPO and it looks even riskier right now.
If you’re not familiar with Fitbit, it can most easily be understood as the maker of a device that counts your steps as you walk throughout the day. In reality, the company makes a large and growing number of devices that support different exercise and fitness goals, from steps walked to steps climbed, heart rate, calories consumed and pounds lost. The company has sold more than 20 million of its products. Its revenue last year nearly tripled to $745.2 million, and it’s profitable.

Sit Back and Watch

And much as I speak cautiously about the stock, I like the product. It gives individuals the tools to set exercise and weight loss goals and motivates them to reach them. My concern is that for all Fitbit does offer, it falls short of its self-described image as a health-care platform.
To be sure, there’s value in providing data on how much a person has walked or eaten in a given day. For years people have sworn by the value of dieting by simply writing down everything they eat. Fitbit adds a lot of ease and automation to that concept.
But that is still a far cry from being a medical device. There is not enough room here to outline all the health-care challenges this country faces, but they involve issues like nutrition and education and economics that Fitbit alone can’t address.
As much as Fitbit is all about movement, investors who are concerned they might have missed out on the best IPO of the year should sit back and watch. They should watch both the company’s stock movement as well as corporate developments – like the way it expands its product line and the partnerships it forms that could better align it with the health sector.
There may be a time in the future when the Fitbit stock price more closely matches the underlying value of the company. But for now, I’m not convinced.

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