Shares of Fitbit Inc. fell 5.7% in premarket trading Friday after analysts at Stifel Nicolaus downgraded the stock to sell. “With the stock market near all-time highs, no visibility to monetization of healthcare opportunities, and no opportunity for Fitbit to benefit from corporate tax reform, we cannot advocate owning Fitbit shares,” wrote the analysts, led by Jim Duffy. He sees “no sightlines to profitability” unless Fitbit is able to “drastically” reduce costs or generate enough demand for its newer products to compensate for weak interest in basic fitness trackers. Given Fitbit’s gross margins, Duffy thinks the company would need to deliver revenue growth in the mid-teens in order to break even, which he deems a “high hurdle” given estimated holiday performance. Separately, analysts at Morgan Stanley on Thursday pointed to “continued inventory build” for Fitbit’s new Ionic smartwatch and suggested that the company’s older watch, the Blaze, could actually outsell it this holiday season. Fitbit has been trying to appeal more to healthcare businesses so that it can become less reliant on device sales to consumers, but Duffy is skeptical. “While monetization avenues in the digital health space remain conceptually intriguing, realization of the opportunity has been underwhelming to date and there is nothing tangible to point to return on the associated R&D investment spending,” he wrote. He set a price target of $6 on Fitbit shares. The stock is down 6.8% so far in 2017, compared with a 18% gain for the S&P 500 Index .
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