BBRY Stock Overvalued After BlackBerry Denies Buyout

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BlackBerry Ltd (NASDAQ:BBRY) stock roared nearly 30% higher yesterday after a Reuters report that Samsung Electronics Co Ltd (KRX:005930) had made offers to buy out the beleaguered handset-maker.

BBRY Stock A Ripoff After Blackberry Denies BuyoutThe allegation was that Samsung wanted to snap up BBRY “for as much as $7.5 billion, seeking its valuable patents as it battles Apple Inc. (NASDAQ:AAPL) in the corporate market.”

As evidenced by the 30% gains — which all came in the last half-hour of trading on Wednesday — this was an amazing story for Wall Street nerds and tech investors alike. Unfortunately, it was all fiction.

Both companies flatly denied the rumors, as a Samsung spokeswoman called the speculation “groundless.” Similarly, BlackBerry issued a news release to rebuff the reports and refused to discuss the “rumors” any further, citing company policy.

In early trading on Thursday, BBRY stock had given up about 17% of that 30% gain. What about the missing 13%? Does Wall Street seriously think the story could hold some weight? That seems to be what the price of BlackBerry’s stock is saying today.

BBRY Stock Should Correct Further

Color me skeptical that a buyout is still in the cards — especially since it never was in the cards to begin with. Adding to that healthy dose of doubt is the poor  track record that BBRY buyout allegations have.

Consider a similar situation back in October, when reports fingered Lenovo Group Limited (ADR) (OTCMKTS:LNVGY) as BlackBerry’s suitor. InvestorPlace.com Editor Jeff Reeves didn’t buy it. Noting that the source of those rumors was a “conspicuously anonymous report on Benzinga,” and noting that BBRY stock had jumped 15% in the last week, Reeves laid out his case:

“Any anonymous source should be treated with care. And considering the drumbeat of fruitless BlackBerry buyout chatter over the last few years, this topic automatically raises some red flags. Furthermore, considering the lack of information on that stub article written by Charles Gross on Benzinga, this specific report should be treated even more skeptically.”

Those Benzinga reports in October pegged the buyout between the range of $15 per share and $18 per share, for a premium between 58% and 90% to the previous day’s closing price.

Similarities between that false account and yesterday’s Reuters report abound. Referencing an unnamed “person familiar with the matter,” and claiming that Samsung offered a “price range of $13.35 to $15.49 per share, representing a premium of 38 percent to 60 percent over BlackBerry’s current trading price,” the BBRY stock buyout yet again sounded too good to be true.

And it was.

So why on earth hasn’t BBRY stock given up all of the quick gains from yesterday that came as a direct result of the unfounded buyout rumor? Either there actually is a higher chance of a buyout after the article, or you can chalk it up to the irrationality of Wall Street.

I chalk it up to the latter. Sell BBRY stock today and take advantage of the eventual full correction in its share price.

As of this writing John Divine was long shares of AAPL stock. You can follow him on Twitter at @divinebizkid.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/01/bbry-stock-overvalued-after-blackberry-ltd-denies-buyout/.

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