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Stock Valuation

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The two stocks I chose for the sell-side analyst are Fitbit Inc. (FIT) and CB Richard Ellis Group, Inc. (CBG). Through intensive research and evaluation of the two stocks I strongly believe that FIT will underperform the S&P 500 and CBG will outperform the S&P 500. I believe that CBG will outperform the S&P 500 in the coming fiscal year based on the firm’s strong background, prior history, and comparative advantage. I believe that FIT will underperform the S&P 500 in the coming fiscal year due to its recent stock decline, lack of innovation, and the credibility of its well-known competitors. CB Richard Ellis Group Inc., or simply CBRE, is a worldwide real estate services & investment firm that serves real estate owners, investors, and occupiers throughout the world. In short, CBRE offers strategic and execution advice for a multitude of real estate properties and investments. According to CBRE’s website, “CBRE consists of 70,000 professionals whom provide outcomes for clients in 60+ countries”, based off this information it is clear that CBRE is an enormous firm that is continually expanding and improving. According to CBRE’s official website it had substantial revenues of around $10.9 billion. Based on the company’s recent history it’s quite evident that CBRE is one of the most dominant firms in its field for numerous reasons. For one, its size, CBRE Group, Inc. is the world’s largest commercial and real estate services and investment firms. Not only is this firms size quite impressive but its history is as well. CBRE has been a part of the fortune 500 since 2008 and for the past 15 consecutive years has been voted industry’s top brand by Lipsey Company. If that’s not impressive enough CBRE has also been named one of Fortune’s “Most Admired Companies” for four consecutive years. As outstanding as this firm appears you’d assume that its stock would be fairly valued, however the stock price has pulled back drastically in prior months from a high of $40 last year to about $25. On the bright side the company is estimated to earn approximately $2.30 this year and continually grow in earnings in the following years.

Information from CBG -NYSE
Company Net Income EPS P/E PEG (5-year) P/S CB Richard Ellis Group Inc. (CBG) 547.13M 1.63 18.41 0.99 0.94
Jones Lang LaSalle Inc. 438.36M 9.65 12.07 1.17 0.91
Industry N/A 0.39 12.52 1.19 4.36

Overall, I strongly believe that the CBG stock is a great investment based on the firm’s strong history within the market. Although the current valuation of the CBG stock is at about a 30% discount to the S&P 500 I believe that the valuation fails to acknowledge the historical background of this company and its improving business model. Based on CBRE’s impressive historical data it’s evident that it is one of the most dominant firms in its field for a multitude of reasons. For one, its size, CBRE Group, Inc. is the world’s largest commercial and real estate services and investment firms. The next largest competitor to CBRE is only about half of its size giving CBRE a notable comparative advantage. Not only is this firms size quite impressive but so are its accomplishments. As stated previously CBRE is a fortune 500 company and has been nominated for honors such as “Industry’s top brand” and “most admired companies”. CBRE also provides its services to roughly 90 of the Fortune 100 companies and provides a substantial amount of diversified services. With vast amounts diversified business lines CBRE holds a comparative advantage against its competitors. CBRE has the ability to fall back on different business lines when certain market conditions become more or less favorable than others. CBRE company currently has a large focus in leasing services and property management which are recurring. Their contractual revenue is expected to account for about 75% of all revenue expected for this year which is 25% higher than the account from prior years.
Overall, CBRE seems to be a diamond in the rough in the current market. It’s foolish to ignore this company’s ongoing strength in their business model and factors of predictability that are not noted by the S&P 500. It can be concluded that CBRE’s impeccable size, strong history, diverse business lines, and comparative advantage over its competitors are all prevalent factors in the undervaluing of the CBE stock.
Fitbit Inc. is a company that has embarked on today’s growing trend of health, fitness, and well-being. Fitbit’s products use new technology to help individuals reach their fitness goals as well as keep track of them. Fitbit has multiple products mostly consisting of electronic wristbands which keep track of an individual’s daily steps, stairs climbed, calories burned, heart rate, sleep tracking, calls, texts and calendar alerts. Fitbit Inc., which was founded in 2007, consists of several products such as the Zip, One, Flex, Charge, Charge HR, Aria Scale and their most recently released band the Alta. Other than the vast amount of wristbands Fitbit Inc. also has innovated a high tech scale called “Aria” that automatically and wirelessly syncs to your Fitbit dashboard using Wi-Fi. The Aria is quite impressive due to the fact that it can do what most scales cannot. The Aria has the ability to track weight, lean mass, body fat percentage, and can sync up to eight individuals’ personal information. Lastly Fitbit Inc. has an app for smartphones that users can download to see all of their data that their Fitbit product has collected. The app links all the products together and is quite user friendly to those who have purchased the product. As an owner of the Fitbit charge I personally find it to be a good product however, it quickly begins to lose its appeal. It seems that if you do not own both the Fitbit band, the Aria scale, and a smartphone that supports its app then you are missing out on what could be a great product family. Unfortunately, the cost of owning all three of these products well exceeds what most individuals are actually willing to spend for what this product line provides. Fitbit, having very little diversity in their product line and products that all basically have the same features has resulted in the company failing to build clientele and lack of customer loyalty. As a user I personally have found myself going weeks without wearing the product and consistently using the app less and less. You can also connect with friends via the Fitbit app and compare progress with one another. Ever since purchasing the product I have noticed many, if not all, of my friends have had months of inactivity with syncing their data meaning they most likely have lost interest in their product as well. Even though my personal experience may not directly affect the valuation of FIT’s stock it does give insight to some of the reasons why recently the stock, currently at 17.39, has steadily declined. Taking a further look into FIT’s stock, new products, market trends and competition for Fitbit Inc. it is clear why I have a strong belief that this stock is overvalued and will underperform the S&P 500.

Information from FIT - NYSE
Company Net Income EPS P/E PEG (5-year) P/S Fitbit Inc. (FIT) 114.02M 0.75 23.25 0.75 1.97
Apple Inc. (APPL) 53.73B 9.40 11.10 1.08 2.48
Alphabet Inc. (GOOG) 16.35B 25.39 30.01 1.33 6.64
Industry N/A 0.08 23.50 1.39 1.77

As previously stated I found Fitbit to be a new product with great levels of innovation and technology not previously seen before. Even though Fitbit Inc. had breached the market with its product line its competitors quickly hopped aboard the train in this growing market. The chart above shows FIT’s stock information and its competitors information as well. It’s likely that you’ve heard of Google and Apple products more so than Fitbit products. In fact, Google and Apple are both Fortune 500 companies with Google currently ranking 40th and Apple ranking 5th. Fitbit on the other hand is not a fortune 500 company and must compete with these two companies who have large sums of money which can be used for new products and to breach into markets with favorable conditions. Apple and Google both have very diversified products and product lines in multiple markets giving them the ability to fall back on different products when one fails to achieve certain results. Apple has followed Fitbits path into the fitness market with a new wrist watch that is quite hard to compete with. Apple, who is well known for the ever so popular iPhone, has managed to substantially raise the stakes in the fitness band market with the recent release of the Apple Watch. In short, Apple has implemented the elements of its high selling iPhone into the Apple Watch which can do just about everything Fitbits products can and a lot more including the ability to text, call, facetime, download apps, stream videos and vast amount of other favorable features. Apple’s comparative advantage, diversification, large net income and superior new products have left Fitbit fitness wristband campaign in the dust.
Fitbit Inc., struggling to maintain its standing in the market, has recently released two new products, the Fitbit Blaze and Alpha, which Fitbit Inc. hopes will appeal to new customers and diversify its ever so similar products. Unfortunately for Fitbit the release of the two new products may actually set Fitbit Inc. and the FIT stock back more than ever expected. The release and production of the two new products will negatively affect first-quarter earnings and R&D will also hurt Fitbits operating margins in 2016. Although, Fitbit is at a disadvantage in the market it has maintained to hold its spot as the market leader is the wearables field which I strongly feel has led this stock to overvalued. Even with the two new products that had recently entered the market they both still lack features that the Apple Watch has. Unlike Apple Inc., Fitbit Inc., has no way of generating new income, such as an App Store, which allows Apple to hold another comparative advantage in this market. Trip Chowdhry, an analyst at Global Equities Research stated, “I believe there is 50% more downside to Fitbit’s stock”. Chowdhry also explained stated, “Gradually the market for single-purpose devices (fitness tracker) is heading toward zero and there is nothing FIT can do to reverse the trend. Based on these statements from Chowdhry it is evident that Fitbit Inc. and the FIT stock is destined to fall even more as its competitors move forward and Fitbit continually lacks innovation.
Overall, I strongly believe that the FIT stock is overvalued due to the fact that it is the market leader in the wearables field. It’s clear that the FIT stock’s valuation has ignored key market factors that will drastically affect the stock. Factors such as competition from two of the most well-known companies, superior products, lack of diversity, and unfavorable trends are all facts that the S&P 500 has failed to include in the FIT’s stock valuation.

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