Why Wearables Are The Next 'Mega Trend'

In a report published Monday, Piper Jaffray analyst Erinn Murphy explored the Wearable Technology space, noting that it will be the next "mega trend."

Wearable technology involves the use of a device that is worn on a person and connects to a network (through wireless technology such as Bluetooth) that tracks, analyzes and deliver relevant information to the user.

"Simply stated, we believe wearable technology will be the next generation of devices to transform how individuals consume and use information," Murphy wrote.

Murphy noted three "mega secular trends" that will fuel growth in the relatively new space: an ongoing traction with health and fitness, a notion of quantified self and proliferation of social communities, and a convergence between brands and technology.

Related Link: Morgan Stanley, SunTrust Initiate Fitbit With Positive Notes

Murphy said the wearable market could prove to see adoption levels at a higher rate versus the tablet market, which is estimated at a 20 percent penetration within developed nations. The analyst also estimated that the market is expected to grow from 21 million units in 2014 to 150 million units in 2019, implying a 48 percent five-year compounded annual growth rate.

The analyst also estimated that fitness bands are expected to realize a compounded 31 percent annual growth rate, while smartwatches are expected to see an 82 percent compounded annual growth rate. By comparison, the apparel industry grows in the flat to low-single-digit range, while both handbags and footwear grow in the low-single to mid-single-digit range.

Murphy suggested that investors should favor companies such as Fitbit Inc (NYSE: FIT), Under Armour Inc (NYSE: UA) and Nike Inc (NYSE: NKE), all of which have taken "unique" approaches in the growing market. In addition, GoPro Inc (NASDAQ: GPRO) and Sequential Brands Group Inc (NASDAQ: SQBG) are "other ways" to play into the theme.

Traditional watch and brands such as Fossil Group Inc (NASDAQ: FOSL), Ralph Lauren Corp (NYSE: RL), Michael Kors Holdings Ltd (NYSE: KORS) and Guess?, Inc. (NYSE: GES) are all investing in wearable technologies, but it "could take time" for these companies to see a return on their investments.