Duolingo (DUOL) Is Considered a Good Investment by Brokers: Is That True?

Core Viewpoint - Wall Street analysts' recommendations significantly influence investor decisions, but their reliability is questionable, particularly in the case of Duolingo, Inc. (DUOL) [1][4]. Group 1: Brokerage Recommendations - Duolingo has an average brokerage recommendation (ABR) of 2.00, indicating a "Buy" based on 17 brokerage firms' recommendations [2]. - Among the 17 recommendations, eight are classified as "Strong Buy" and one as "Buy," accounting for 47.1% and 5.9% of total recommendations, respectively [2]. Group 2: Limitations of Brokerage Recommendations - Studies indicate that brokerage recommendations often do not successfully guide investors in selecting stocks with the highest price increase potential [4]. - Analysts from brokerage firms tend to exhibit a positive bias due to their vested interests, leading to a disproportionate number of favorable ratings compared to negative ones [5][9]. Group 3: Zacks Rank as an Alternative - Zacks Rank, a proprietary stock rating tool, categorizes stocks from 1 (Strong Buy) to 5 (Strong Sell) and is based on earnings estimate revisions, which correlate strongly with near-term stock price movements [7][10]. - The Zacks Rank is updated more frequently than the ABR, reflecting timely changes in analysts' earnings estimates [11]. Group 4: Duolingo's Current Position - The Zacks Consensus Estimate for Duolingo remains unchanged at $2.61 for the current year, suggesting stable analyst views on the company's earnings prospects [12]. - Due to the unchanged consensus estimate and other factors, Duolingo holds a Zacks Rank of 3 (Hold), indicating caution despite the Buy-equivalent ABR [13].