Is It Time For Fitbit Investors To Panic?

Fitbit Inc. (NYSE:FIT) celebrated the New Year with a brutal selloff. The stock closed 2015 at $29.59, and on Monday, shares of FIT closed at $18.85. This represents a 36.3% decline.

To be sure, some of the decline was due to the broad market weakness. Fitbit is known as a “high beta” stock, meaning that it typically rises and falls faster than the market. So when the broad market is weak, high beta stocks typically experience even larger losses.

(Source: TradeStation)

But while the broad market played some part, the biggest influence on Fitbit’s performance this year was investor reaction to Fitbit’s newest product. Last week, the company unveiled the “Fitbit Blaze” at the Consumer Electronic Show in Las Vegas.

The blaze is a watch-like fitness tracker that closely resembles the Apple Watch. Investors hit the panic button after the announcement, as it appeared that Fitbit had entered a head-to-head competition against Apple Inc. (NASDAQ:AAPL).

On Monday, the weakness was enough to cause Fitbit to close below its IPO price of $20. This is a significant price point simply because it’s the first time investors who participated in the offering have been left with a loss on their hands.

While the decline for Fitbit is disappointing, this is not the time to panic. Today, I want to look at the company’s prospects and explain why at this price, Fitbit represents a valuable investment, and not a speculative “also-ran” in the consumer technology field.

Does Fitbit Really Need To Compete With the Apple Watch?

Much of the market chatter surrounding the decline in FIT has been focused on whether the “Fitbit Blaze” can compete with the Apple Watch. But while the two items may look similar at first blush, the functionality of the Blaze and the Apple Watch leave the two devices in very different categories and not likely to compete head-to-head against each other.