Not so fast, Pacific Crest. Mizuho and Gizmodo both disagree with your recent assessments of how well Fitbit Inc (NYSE:FIT) is doing with the recently debuted Charge 2 and how it stacks up against the competition. The Verge may have missed the mark as well.
How does the old saying go — there are two sides to every coin? Although Fitbit stock paid the price for the market’s doubts on Thursday, Friday’s bounceback on the heels of some encouraging and diametrically opposing looks says FIT stock may not be so difficult to own here after all.
On the flip side, it’s not likely to be a Cinderella story either.
A Tale of Two Opinions
It’s been a whirlwind week for Fitbit stock, to say the least. On Monday the company announced the new Charge 2 was available on a global basis. That very same day, Gizmodo was singing the Charge 2’s praises, saying it was the “best fitness tracker, period.”
Yet, on Tuesday, health insurer Aetna Inc (NYSE:AET) announced it preferred (and would at least partially fund) the Apple Inc. (NASDAQ:AAPL) smartwatch over Fitbit’s fitness trackers as a means of encouraging healthier living among its customers.
On Wednesday, consumer-technology website The Verge offered a less-than-compelling review of the Charge 2, suggesting it was still buggy.
By Thursday, FIT stock was tanking on a Pacific Crest downgrade, pointing out the initial demand for the Charge 2 was tepid. Later that same day, Mizuho reported sales of the Charge 2 were actually firm, saying, “Our checks across several retailers point to favorable reviews and strong sell through including nearly 300 reviews on Amazon with a 4 star ranking.”
For shareholders, it has been maddening. Then again, as high-profile as Fitbit stock is, seeing assessments that fall all over the map isn’t surprising. It’s all part of the dance, and the more publicity there is at stake, the more frequent and extreme the commentary becomes.
Reality Check
For owners of Fitbit stock who aren’t quite sure what to think, they didn’t get any help this week about where the company stands. This may help though … the most “right” assessment tends to be an average of all the assessments.
In this particular case, that means the Charge 2 is better than the liability The Verge implied it was, but isn’t quite the heroic piece of technology described by Gizmodo.
Likewise, sales of the Charge 2 aren’t apt to be the disaster Pacific Crest suggests they are, but Mizuho is likely to be a little too optimistic about its initial sales. After all, Mizuho has a “buy” rating on FIT, and maintains its $20 price target on Fitbit stock. It’s in Mizuho’s best interest to keep traders bullish on the company.
Individually, analysts can and often do make mistakes. As a group, though, their average opinions tend to be respectably accurate.
Giving credit where it’s due, it was James Surowiecki in his book The Wisdom of Crowds who best made the point that groups as a whole know better than individuals, even if no one single individual knows anywhere near as much as the crowd collectively does.
His version of the classic experiment found that in a classroom of 56 people trying to guess the number of beans in a jar, the average guess of 871 was pretty close to the actual figure of 850 beans. Only one person out of the 56 made a better guess than the class collectively did.
Not that two analysts and two consumer-tech oriented websites are a statistically significant sample size, but even just among those four organizations it’s not difficult to appreciate that at least two of them have to be wrong. Charge 2 sales can’t be good and bad, and the device itself can’t be worthy and unworthy.
Bottom Line for Fitbit Stock
As for what this means to current and would-be owners of FIT stock, only time will really tell if the Charge 2 is going to meaningfully pan out, and rekindle the struggling stock. If history repeats itself though (and it usually does), this quarter’s sales of the Charge 2 will be moderately OK and consumers’ opinion of the device will be encouraging without it being deemed a must-have.
In other words, while the market may not always make intelligent decisions with the information it has, the market really is quite efficient, spreading enough information around so extreme surprises are a rarity.
Incredibly enough, Fitbit stock may be a boring name to watch for the foreseeable future, now that so many eyes are on it and contributing to prospects-based valuation.
Right now, analysts have an average target price of $21.38 on FIT, and the rating is something between a (modest) buy and a hold. It was trading around $17 before this week’s pullback.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
