Why These Analysts Bought Fitbit All Of A Sudden

• Shares of Fitbit, Inc. FIT have risen 7.48 percent in the last three months.
• Pacific Crest’s Brad Erickson has initiated coverage of Fitbit with an Overweight rating and price target of $47.
• With conservative margin expansion for a business that is growing rapidly and with opportunities to diversify its revenue channels, Erickson believes that the stock valuation is reasonable.

According to the Pacific Crest report, “Fitbit is the share leader in a wearables market that is growing over 100 percent this year, with rapidly improving distribution and customer brand recognition.”

In addition, Erickson believes that the company’s corporate wellness opportunity is underappreciated and has the potential to drive multiple expansion.

Although there could be some near to medium term competitive threat posed by Apple, Inc. AAPL, Erickson believes that the fears are overdone, given that Apple’s fitness watch does not present any risk to Fitbit and that there is no product launch slated in the near future from Apple.

Erickson expects Fitbit’s revenue to grow at a three-year CAGR of 54 percent, although margin expansion is unlikely in 2015 due to high marketing expenses.

“Fitbit has concrete opportunities to diversify its revenue channels away from strictly direct-to-consumer through corporate wellness channels—nearly a $100 million revenue run-rate business today with the chance to grow significantly larger,” the report added.