Meet Joe Wittine, The Analyst Buying Fitbit Now

Fitbit Inc (NYSE: FIT) may be down over 50 percent for the year-to-date period and the last 12 months, but a rally could be forthcoming. At least, that's what one Longbow Research analyst believes.

Analyst Joe Wittine has initiated coverage of Fitbit on the last day of 2016 Q1, citing there is a 50 percent upside likely, and attractive short- and long-term catalysts in place.

According to Wittine, reads of Q1 2016 have provided enough indication that the product cycle for Fitbit looks positive. Particularly when placed against the backdrop of Wednesday's close at $14.06, Wittine believes the tides may be turning and the time is right to buy the issue.

Regarding short-term catalysts, Wittine explained, "Short-term, FIT's 2016 product cycle is off to a great start. Our discussions with Fitbit's retail channel show (1) the Blaze saw huge Day 1 demand in the U.S., and is not bumping against the Apple Watch, (2) retailers restocked in March, implying 1Q upside, and (3) Fitbit's first upgrade cycle is underway, since one-third of early Blaze and Alta buyers are existing Fitbit owners."

Related Link: New Fitbit Checks Show Analysts Are Underrating Blaze Potential

Looking further ahead into the future, Wittine also sees upside potential for Fitbit.

"Longer-term, we are very encouraged by FIT's opportunity to scale its corporate wellness business. We believe employer-subsidized trackers can reach a tipping point in the next couple of years, creating a 15 million U.S. unit TAM, as employers offer direct healthcare premium savings to employees in exchange for modest activity goals."

Investment Thesis And Valuation

The analyst concluded that in addition to the above drivers, international expansion and further innovations into the "clinical" device space (for example, blood sugar monitoring capabilities), the stock is deserving of investor attention.

Wittine addressed valuation concerns and summarized, "FIT's trades at a value multiple despite a growth profile. With sales forecast to grow at a 59 percent CAGR 2014A-2017E and EPS growing at a ~40 percent CAGR (granted, assuming some op-leverage expansion in 2017), the shares trade at 11x 2016E EPS, or a PEG below 0.5x.

"Compared to a group of CE peers, FIT trades in-line on an EV-to-sales basis (group median is 1.3x 2016E, 1.1x 2017E), but well below on a P/E basis […] At the surface, 5-multiple gap is confounding, with FIT's valuation clearly pricing-in a secular slowdown that has yet to occur, and in our view will not occur in 2016 based on the refreshed product cycle, corporate wellness growth, and FIT scaling in Asia."

Fitbit was recently seen up roughly 6 percent on the day at $14.21.