Several years ago BlackBerry Limited (NYSE:BB) — then known as Research In Motion Limited — was a smartphone maker that was synonymous with business. Blackberry mobile phones were popular and expensive — and once upon a time, they were trendy too. The key features of those mobile phones were secure communications and mobile productivity, plus a suite of applications that made business on the move easy and effective. But is BB stock worth considering now?
Today, Blackberry mobile devices are sold by BlackBerry-branded licensing partners, one for the area of India, Sri Lanka, Bangladesh, and Nepal, and another one for the rest of the world. But really, in 2021, selling mobile phones with a natural keyboard on them seems unappealing and outdated to many people.
In business, you must always be on alert for trends and changes. So it is no wonder that Blackberry lost its once-dominant position in the market. Other platforms innovated and came out on top, particularly Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Android and Apple’s (NASDAQ:AAPL) iOS platforms.
During the past decade, there has been a shift in Blackberry’s business strategy. The company now focuses on providing security software and services to enterprises and governments. It has several services offered, such as cybersecurity consulting, safety and data privacy, enterprise consulting and endpoint security management.
Is BB stock now more than a meme stock, and does it offer value?
BB Stock Delivered Results Without Any Solid Reason
BB stock is up 160% on a one-year basis and up 85% in 2021 so far. But these gains have largely been artificially generated by the support of social media forums, and the hype related to them. In June 2020 the stock was trading at about $5 per share, in January 2021 it made the 52-week high of $28.77, and now the stock has lost 55% of its peak price.
At $12.23 per share, is BB stock a bargain? This price behavior is that of a typical meme stock. Some excitement is gaining traction over time, then the FOMO effect kicks in, suddenly the stock is attracting tons of interest and its trading volume surges on no news and then the euphoria ends suddenly, as it should leaving some investors with huge gains and some with huge losses.
The argument of using an aggressive short squeeze to punish the Wall Street has performed well for some investors. But the underlying reason for the stock being shorted heavily and collapsing over time is that its fundamentals and valuation and business prospects don’t look great. So this battle between retail investors and the short-sellers is interesting, but very risky. Is BB stock an exception to this rule?
In one word: no.
BlackBerry — Ambitious Plans, Lagging Performance
Meanwhile, BlackBerry has become a developer of the software helping to power self-driving cars. It has also focused on Internet of Things (IoT) applications, and is building a brand in the cybersecurity industry.
But I am trying to understand its complicated business plan and vision. Is it a software developer with a dominant position in exactly what markets?
The company itself on its website states “Our devices changed where we work. Our security is changing how we work. From cybersecurity to critical event management, to the Internet of Things, when we say intelligent security everywhere — we mean everywhere.”
Is this a bold statement? To a large degree, it is. But unless you are a conglomerate company, focusing on various industries simultaneously entails plenty of risks.
The good news is that cybersecurity and applications for electric vehicles (EVs) have a lot of potentials. But a close and analytical look at the industries the company is trying to provide solutions for reveals something worrying — where are the business focus and the economic moat?
From financial services to healthcare, education to transportation, utilities to manufacturing, and even legal professional services and services offered to the government such as public safety and law enforcement, what I see is many uncorrelated industries with a very complicated approach to business.
Has this optimistic holistic business plan performed well at least? Unfortunately no.
BlackBerry Financials: Not so Inspiring as its Vision
With moderate financial strength and a Debt-to-Equity ratio of 0.55, I see several warnings for BlackBerry. Debt is increasing, equity is decreasing. This should be monitored closely, especially when combined with a very poor profitability trend.
According to MarketWatch net losses of $201.5 million ballooned to net losses of $1.47 billion in fiscal 2021. A few other key financial metrics that make me wary about the stock are revenue growth, operating margin, net margin, and book value per share.
Data taken from MorningStar shows a 10-year average growth of revenue for BlackBerry of a negative 26.69%. Revenue is the start of analyzing everything else about the financial performance.
The company is struggling to increase its revenue and in the past decade, its revenue has declined. Furthermore, its operating margin is negative for the past five consecutive years. If a company cannot make a profit from its core operations things do not look good.
The last time BlackBerry was profitable was back in 2019 with a net margin of 10.29%. In 2020 the net margin went negative to -14.62% and in 2021 it became even worse as it fell to a negative 123.63%.
The management of Blackberry also is doing a terrible job at producing added value as the book value per share has fallen significantly.
BB Stock: What is Next?
The fundamentals do not inspire me now, and a company that is considered a tech company should provide enough growth to make its stock alluring to investors. This is not the case here — the revenue growth over time is negative.
In the Analyst Summit 2021 financial discussion, some key takeaways were that Blackberry is focused on growth, both in the cybersecurity and IoT industries, and that there could be very strong opportunities in FY23 and beyond.
I would like to see these figures materialize first. Until then the stock seems too pricey, does not inspire with the total financial performance, and is by no means a bargains stock now near $13 per share. The dynamic and ambitious business vision and strategy do not have great results yet. Until BB stock becomes more than a meme stock with at least strong and consistent documented earnings, the verdict is to avoid it.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.