Long-Time Fitbit Bull Slashes Target, But Still Thinks Stock Could Double

Pacific Crest’s Brad Erickson maintained an Overweight rating for Fitbit Inc FIT, while reducing the price target from $47 to $31, citing an expected slowdown in the company’s performance in 2016.

Market checks indicate that demand has stabilized at seasonally lower levels for 1Q, with inventory days increasing from 10 in 4Q to 16 in 1Q. Erickson believes that the trend of increased inventory days needs to be monitored.

Corporate wellness is a “free call option” and offers a major growth opportunity for Fitbit, Erickson said, while adding that investors seem to be ignoring its potential.

“Further, we think most investors are completely overlooking insurance companies' ability to subsidize directly to policyholders as an adjacent channel,” the Pacific Crest report noted.

The price target reduction is attributable to investor appetite for risk factors associated with the company, including the potential for market saturation, pricing pressure and margin erosion.

“With 30%-plus growth and potential for modest margin expansion, to say that FIT's current 10.3x out-year earnings multiple looks attractive is an understatement, in our view, and we remain buyers,” Edwards wrote.