The aptly named Catapult Group International has reinforced the potential of “wearables” technology, and its stock has increased more than fourfold in the past 12 months. The gains should encourage investors to seek other stocks exposed to the wearables theme.
Catapult raised $12 million through a December 2014 Initial Public offering to develop new technology that combines wearable hardware with analytical software. Many of the biggest clubs in Australian sport uses its technology to monitor elite athletes.
Catapult is achieving record sales and upgraded its earnings guidance in July. Its 55 cent issued shares trade at $3.74. But a $310-million valuation for a tech company that is still making losses captures the potential, at least for now. Still, the impressive Catapult is one to watch on any significant price weakness.
Catapult Group International Source: The Bull
Wearables technology is a fascinating trend. The boom in fitness trackers that measure step counts and heart beats is just the start. Wait until technology is embedded in clothing and linked to service providers and big-data software programs. It’s already happening with some health insurance funds providing financial incentives for members who exercise regularly and record and submit the data through wearables devices.
How long until wearables technology provides real-time data for your doctor or other medical professionals? For example, clothing that measures your heartbeat and breathing, sends the data to your doctor and is monitored in real-time by a software algorithm. The technology alerts the doctor to call if any health issues are identified.
Wearable technology can extend from clothing to jewellery, glasses or anything that is worn on the body. Embedded technology in shoes that monitors the impact of running on your joints, or helps parents track wandering young children, anybody?
Even better, your employer provides wearable technology to staff and tracks their daily steps, physical exertion, location throughout the day, and health signs. Big brother? Yes. Fraught with privacy issues? Yes. A way to boost productivity if done correctly? Absolutely.
Macquarie Equities Research in June said the adoption of wearables, while limited in the short term, provides a large market opportunity and is a threat to other mobile devices. For example, people getting emails and texts via their fitness tracker (it happens now) or “smart glasses”.
Macquarie said the convenience of wearable technology and lower costs compared to other mobile technology were advantages. Also, the adoption of cloud-based apps offers huge upside for the wearables market. Macquarie wrote: “As the cloud-based app approach gains share, providing a more flexible and rich user experience, self-monitoring is becoming more mainstream than ever before, and corporates are already seeing an overall improvement in productivity.”
So which Australian stocks are best placed to benefit from this trend? That’s a tough question given the lack of wearables technology companies on ASX.
Catapult has a valuable first-mover advantage in wearables technology for athletes. But the big long-term winners for wearables will probably be in medical devices, healthcare and insurance. Retailers, too, could benefit from this this trend.
Consider the sleep apnoea advice marker, ResMed Inc. It has several products in development or on the market that used cloud-based technology to send a patient’s breathing data to their sleep specialist or general practitioner.
As a ResMed customer (and mild sleep apnoea sufferer), I recall spending the night in hospital, hooked with wires from head to toe, and being expected to sleep so that the operator could measure my sleep patterns. Then having to spend another night in hospital coupled to a clunky continuous positive airways pressure (CPAP) machine, to see the breathing difference.
Like many, I found the CPAP uncomfortable and could not comply (weight loss solved my breathing problem). Imagine if wearables technology was available then and ResMed could measure breathing at night through clothing or other comfortable devices.
Hospital operators, such as Ramsay Health Care, also have much to gain from wearables technology. Lightweight clothing or other devices could monitors patients 24/7 and aid mobility during the hospital stay. Wearables technology, if done well, could enhance hospital productivity and patient experience over the coming decade or two.
The retailer RCG Corporation, a favourite of this column in the past three years, is another exposed to the wearables trend. The shoe retailer is benefiting as fitness trackers encourage people to walk or run and thus buy new fitness shoes more often. Some I know are obsessed by their daily step count and my suburb seems to have an army of walkers.
Investors wanting purer exposure to this trend should look overseas. Sportswear multinationals, such as Nike Inc and Adidas AG, are benefiting from this trend.
Fitbit Inc, the market leader in fitness trackers, is another option. Listed on the New York Stock Exchange, Fitbit has fallen from $US47 in July 2015 to around US$13. The stock has shed more than 70 per cent of its value after listing in June last year.
Fitbit IncSource: Yahoo. Prices in US dollar.
Fitbit’s market share (32 per cent in in the first quarter of 2015) has reportedly fallen to 25 per cent thanks to new competitors such as Apple Watch. It reported lower second-quarter guidance.
Fitbit looks like it rallied too far, too fast, as interest in wearables technology boomed. At US$13.32, Fitbit is now on a trailing Price Earnings ratio of 23 times and a forward PE of 9.4 times for FY17 earnings, consensus analyst forecasts show.
It could be a value trap. Fitbit has growing competition from giants (Apple) and many smaller competitors. And who knows when the fitness-tracker-band craze will fade? But try finding high-growth Australian companies, which lead a global market, on a single-digit PE.
If wearables play out as expected, tech companies that drive the trend and established companies that benefit from the data it provides have bigger gains ahead.
Tony Featherstone is a former managing editor of BRW and Shares magazines. The information in this article should not be considered personal advice. The article has been prepared without taking into account your objectives, financial situation or particular needs. Before acting on the information in this article you should consider the appropriateness of the information, with regard to your objectives, financial situation and needs. Do further research of your own or seek personal financial advice from a licensed adviser before making any financial or investment decisions based on this article. All prices and analysis at July 28, 2016.