I'm Long Fitbit. Here's Why

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Fitbit (FIT), the world's largest fitness wearables maker, made a spectacular debut in its IPO yesterday, pricing at the top of the range and then shooting up like a rocket ship once it started trading. 

The shares priced Wednesday night at $20, the top end of its expected range and closed the day at just under $30 for a sweet debut gain of 50%, giving the company a value of more than $6 billion. At that price, the company's valued at more than 8x 2014 sales and just under 50x earnings for the same period. Shares are up another $1 or so per share in early trading this morning (in a dismal tape yet again).

So, you could say it's expensive.

But sales have been growing at quarter-over-quarter clip of north of 200% and, extrapolating that forward for 2015, the P/S ratio could be below 4x and the P/E at 40% or around 20x for 2015. That would be downright cheap, in my opinion, even if those growth rates were slashed by half going further into 2016. 

Various market research companies are forecasting massive growth for this segment and at present FIT is the clear leader in the space, although competition is nipping at its heels. You have companies like Jawbone, Xaomia and Misfit all jostling hard for a piece of this action. But FIT is the clear leader, not only in terms of unit volumes but also revenue and earnings growth. (It is also one of the few companies in the space that is profitable as of last year as well.)

FIT CEO James Park says that part of the money raised in the IPO will be used to make acquisitions and this space is ripe for just that. There are many smaller companies and app makers focused on this segment that don't have the scale or the ability to scale, but have compelling applications and niche products that offer compelling takeover opportunities for a company like Fitbit. 

The one downside that I can see right off the bat is Apple (AAPL) and its Apple Watch, which has just made its entrance in the fitness tracking market and by all reports (and comments from Apple management) has exceeded expectations.  Another area of potential concern are the lawsuits (par for the course they may be) filed by rival Jawbone, which Fitbit says it will defend against vigorously. But lawsuits are distracting and costly and I would rather see them put behind the company sooner rather than to be allowed to drag on endlessly. 

There is room for significant appreciation over time, even from current levels and I have taken a long position accordingly. I suggest you take a look and do the same. 

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