The reasons to be bearish on Fitbit Inc (NYSE:FIT) stock are well-known.
It is yesterday’s favorite wearables company. When wearables first came out, Fitbit dominated an immature market that included basic activity trackers — which were essentially just a fashion step-up from pedometers, with more data. But as consumers began to demand more out of wearables, the market shifted from basic activity trackers to complex smart watches that integrated with smartphones.
Fitbit missed the boat on that transition. Apple Inc. (NASDAQ:AAPL) didn’t. Now, Fitbit is struggling while the Apple Watch has posted three consecutive quarters of 50%-plus growth.
And yet, there are still investors in the FIT stock bull camp. Those bulls are hoping that Fitbit’s latest and greatest product, the Ionic Watch, will thrust Fitbit into the smartwatch conversation.
But there are major risks to that bull thesis. Namely, Apple is running away with the smartwatch space. Whatever portion of the market Apple hasn’t captured is overcrowded with competition.
My research suggests that the Ionic Watch isn’t doing so well against all that competition.
That means FIT stock, which has been bid up to 2017 resistance levels near $7, is due for a pullback soon.
FIT Stock’s Tight Spot
The big problem with Fitbit is that the company doesn’t have a smartphone.
I know that sounds funny, but the companies with huge smartphone bases are dominating and will continue to dominate the smartwatch market.
After all, if you already have an Apple smartphone, it makes sense to get an Apple smartwatch because the integration is so seamless. By the same token, if you already have a Galaxy phone, it makes sense to get a Galaxy smartwatch. Same goes for the Hauwei smartphone and watch, among others.
Between Galaxy, Apple, and Huawei smartphone users, you cover a huge portion of interested smartwatch buyers. Fitbit is left to fight for the rest of the market against a lot of competition, including Garmin Ltd. (NASDAQ:GRMN) and Fossil Group Inc (NASDAQ:FOSL).
That isn’t exactly a rosy scenario for FIT stock.
Moreover, search interest trends for Fitbit’s new Ionic Watch are relatively weak and suggest that the aforementioned thesis will prove accurate in the long-term.
Search interest related to the Ionic Watch was significantly weaker during the Black Friday/Cyber Monday weekend than search interest related to other smartwatches that have matching smartphones. The Apple Watch had significantly higher search interest. Same with the Huawei Watch. And the Samsung Gear S3.
Moreover, search interest related to the entire Fitbit brand was essentially flat year-over-year during Black Friday/Cyber Monday. That doesn’t exactly spell “rebound story.”
FIT Stock Is Richly Valued
Despite all these risks, FIT stock is actually still richly valued.