Fitbit Inc (NYSE:FIT) Investors Overreact to Margin Mishap

Fitbit Inc (FIT)

Fitbit Inc. saw around 27% of its stock value disolve in August. This is according to data by S&P Capital I.Q. The tech firm has also seen a slight lessening of its margins. Despite this, analysts believe that investors have overreacted to what is only a minor mishap.

Fitbit is Bound to Rise

Fitbit’s revenue rose nearly 250 percent this year. The company sold more than $400 million’s worth of its products. This is a great increase compared to the mere $113.6 million it managed to sell in the last financial period. Many analysts were quick to point out, though, that the company had a 5 percent decrease in its margins.

Fitbit (NYSE:FIT) is Strong Against Apple (AAPL)

In part, it was these unexpected figures that lead to investors jumping ship.

In theory, a firm’s margins should piggyback on its sales. Either they remain unscathed or grow as more product sales drive the entity further beyond its break-even point. Fitbit’s results were unlike the norm. For this reason, the entity lost investors over what seemed to be poor management.

Analysts defend by saying such rapid growth often finds emerging firms like Fitbit unable to fully handle their spiked demand. In turn, they often battle to properly drive total efficiency. Fitbit  will learn from this minor mistake and effectively cope the world’s growing demand for its products. The company has resorted to spending $70 million dollars on research and development. An investment like this is sure to see improved margins in the next year.

Apple Poses No Threat To Fitbit Yet

Although the company is a definite leader in the wearables market, it faces competition from Apple Inc.’s  popular watches. But Brad Erickson of Pacific Crest believes the sales of Apple’s fitness watches will not pose a significant threat to FitBit. Further, no new watch product launches are set to take place any time soon from Apple. This is another reasons why Fitbit is in the clear.

“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 today with the chance to grow significantly larger.” Erickson reports. “Fitbit is a share leader in a wearables market that is growing over 100 percent this year.”

Pacific Crest expects around 55 percent CAGR growth for Fitbit  within the next three years. But the firm is unlikely to see much of its margins expand in the current year due to high market expenses. Despite this, analyst are sure that the firm is bound to see massive rises in distribution and brand awareness.

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