Last week, as BlackBerry (NASDAQ:BBRY) launched its new phone Z10 in the American markets, many analysts camped in front of phone stores in order to have a "feel" for how the new phone would be received by the public. Some analysts reported little demand for the phone, while others reported that the phones were nearly sold out in some stores. Just several months ago, when Nokia launched its new line of phones in the US and around the world, we saw that store checks usually missed the big picture and they were pretty meaningless.
When Nokia's Lumia 920 first came out, most analysts were reporting how a lot of stores were sold out and how the phone was seeing very strong demand. When the numbers were released at the end of the quarter, it turned out that the sell outs were mostly due to low inventory across the board, which was linked to supply chain issues. Did analysts learn their lesson? Of course they did not.
When you walk into a store to see how a company's phone sale is doing, you only learn about that particular store. Just for reference, AT&T alone has nearly 20,000 stores and kiosks. When researchers want to examine margin of error in a survey, they look at the total population and sample size. So, in order to have a good representation of AT&T stores in the US, one would have to look at so many stores before they can actually get a good picture. In the table below, I am listing the number of stores one would have to look at and the margin of error one would have in such a sample size assuming that there are 20,000 AT&T stores.
Margin of Error
Keep in mind that social science researchers consider 3% as an acceptable margin of error when they are taking a sample out of a population to measure attitudes, behaviors or beliefs. Basically, in order to have what researchers consider reliable numbers, one would have to check 1,010 out of 20,000 AT&T locations to get a picture that's close to the big picture. Simply checking 3-4 AT&T stores won't even start telling the story. Keep in mind that margin of error is two-way, which means if I make a survey of voting behavior with a large enough sample to have 3% margin of error and I find out that 47% of the people in my survey are likely to vote for Democrats, my margin of error tells me that Democrats are likely to receive a range of votes between 44% and 50%, which is still a wide range. When you have a margin of error as large as 20-30%, your data is pretty much meaningless.
After all, one could collect data in an AT&T store in Detroit while another person could collect data in an AT&T store in Beverly Hills and get completely different results. Checking a few stores tells us nothing about whether a company's products are seeing any demand or not. Even if we checked all the AT&T stores in the country, it would still not tell the whole story because we don't know the inventory status of these stores either. Besides, the US is only one of the countries BlackBerry phones are being sold in, and many people will buy their phones online rather than going to the store, especially if we are talking about business people who are too busy to spend a couple hours in the local phone shop.
I've been calling analysts "trend followers" for a reason. They watch a stock's price going up and try to come up with stories as to why it came up. Next day, the stock price goes down, this time they downgrade the stock with a story as to why the stock came down. For example, when Apple (NASDAQ:AAPL) was trading for $700, many analysts were talking about how the demand is so hot and how iPhone 5 is the best phone in the market and they would give you price targets around $1000. Once the company's stock price fell down to $400s in a matter of months, all of a sudden the exact same analysts started talking about how Apple's phones are not innovative anymore and how Apple is "not cool anymore." They are playing the same game with BlackBerry this time. Just last week, a bunch of banks upgraded BlackBerry after it had a good rally, and now the same banks are downgrading the same stock after it saw a plunge. Many analysts are only good if you are interested in hearing after-the-fact stories but not so good if you want to see where a stock's price is heading next. As Wayne Gretzky would say, they are good about telling why the puck is where it is, but they are not good at telling me where the puck will be next (for those that don't know, Wayne Gretzky is one of the greatest ice hockey players in the history, he is famous for saying: "I skate to where the puck is going to be, not where it has been" which explains why he was so great).
In conclusion, I wouldn't trust any of the "store check" based analyses that are coming out recently. I would be patient, wait a few days to hear the results from the company rather than panicking about what some analysts see in their local store.
Additional disclosure: I'm long Apple and Nokia.