Pacific Crest increased its rating on shares of Fitbit (FIT) - Get Report to "sector weight" from "underweight" late yesterday, claiming that the stock's current price better reflects investor skepticism despite continued headwinds to growth. 

"Our views that drove our Sept. 29 downgrade to 'underweight' have not changed," Pacific Crest analysts Brad Erickson and Elliot Arnson said in a note.

At the time, the firm pointed to "a striking portion of people" who seem to stop wearing Fitbit's devices after a few months, underscoring a "fundamental issue" that has been driving churn and hampering growth. Pacific Crest had also cited Apple's (AAPL) - Get Report threat to Fitbit's consumer business and weak initial demand for Fitbit's Charge 2 activity tracker.

Pacific Crest is not alone in worrying about Fitbit's potential, with shares of the San Francisco-based maker of activity trackers down nearly 70% so far this year on concerns of slowing growth. 

For the current quarter, Fitbit expects sales between $725 million and $750 million, representing a 2% to 5% increase from the year-ago period. This rate of growth would be Fitbit's slowest ever. 

The fourth quarter includes the holiday season, during which Pacific Crest anticipates "generally improving demand" that will nonetheless fall short of analysts' estimates.

The firm projects an earnings decline of 43% and 56% in 2016 and 2017, respectively, due to high spending on product development and advertising. Revenue will likely grow 26% in 2016 and drop 6.4% in 2017, Pacific Crest estimates.

"Our numbers remain below the Street, and we struggle with the sustainability of management's Q1 cash balance target," the analysts said. "However, we wouldn't expect substantive data points either way on demand until early February, when Fitbit likely reports its Q4 results. Thus, the risk/reward for remaining short at current levels has become less favorable, in our view."

Fitbit's future performance will depend upon demand for fitness trackers, sensor differentiation, corporate wellness initiatives, cost rationalization and the company's appeal as a takeover target, Pacific Crest analysts said.

As the wearables market reaches saturation, Fitbit's main opportunity will be within running watches, the firm contended. Fitbit should also focus its attention on developing "healthcare-worthy sensors" that traditional watchmakers such as Fossil (FOSL) - Get Report and Movado (MOV) - Get Report will have trouble replicating, Pacific Crest said.

An acquisition offer could boost shares as well.

Fitbit last week denied reports that it had received a takeover bid from China's ABM Capital.

Fitbit's user base of between 25 million and 30 million could add value to a company with health or fitness exposure, Pacific Crest said. But the firm estimates the user base's implied value at just $150 million to $175 million, far below Fitbit's market cap of roughly $2.17 billion.

Shares of Fitbit are slightly lower in mid-morning trading.