Much like its other meme stock compatriots, Blackberry (NYSE:BB) is having a great time. BB stock has outperformed the S&P 500 by 103.7% and its sector by 101.0% in the past year.
Much like Nokia (NYSE:NOK), Blackberry is a solid company on its own merits. Once known as the world’s largest smartphone manufacturer, BlackBerry now provides intelligent security software and services to enterprises and governments.
But the recent bull run is not because of its fundamentals or outlook. Following wild successes with GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC) earlier this year, Reddit speculators turned their sights to BlackBerry.
BB stock hit unprecedented heights back in January due to a short squeeze when it reached $28.77. Since that time, the stock has fallen substantially, dropping 22.2% in the last month alone.
After the fall, two opinions are emerging. The first is to load up on shares to take advantage of the drop. As we have seen, Redditors have a habit of proving Wall Street wrong. The recent price action in GameStop and several other stocks shows that WallStreetBets is not a thing of the past.
The second opinion is to wait a while for shares to fall a bit more. As I write this, the level of short interest stands at 7.6%, which is not a level that will get Reddit excited.
And considering the stimulus money is drying up, Reddit traders will not have the capital to pump up BB stock. So, considering all these factors, I do not think it’s the right time to pursue this one.
BB Stock Is a Good One but Not at Current Rates
Last month, BlackBerry reported a set of mixed earnings. Although the Canadian security software supplier beat Wall Street estimates for quarterly revenue, the $174 million sales did not compare favorably with the $206 million a year earlier.
Net loss narrowed to $62 million, or 11 cents per share, from $636 million, or $1.14 per share, a year earlier. Demand for its QNX operating software and cybersecurity products remains solid. But you can see that the sales momentum is fading a bit.
It makes sense. When the pandemic struck, demand for cybersecurity services skyrocketed as businesses migrated to cloud-based computing to support remote work. Therefore, on the IT security front, BlackBerry is rock solid.
My colleague Larry Ramer makes an excellent point. You have to put the first quarter numbers into context. A once-in-a-lifetime pandemic helped boost the top line last year. Understandably, the numbers will not be the moving forward.
In addition, BlackBerry’s QNX business suffered due to chip shortages and the company’s intellectual property revenue fell in Q1 because of ongoing talks over the sale of many of its patents. Finally, the company pays out its annual bonuses in Q1, which also substantially impacts the bottom line.
Apart from the solid financials, an early version of Ivy, the auto app store BlackBerry is developing with Amazon (NASDAQ:AMZN) and other partners, is expected to be released in October 2021.
BlackBerry IVY is a scalable, cloud-connected software platform, which will enable automotive manufacturers to read vehicle sensor data and create actionable insights from that data. Moving forward, this can become a major source of revenue for BlackBerry.
Long-Term Investment Once the Price Falls
Considering the positive tailwinds, it makes sense if you are interested in BB stock. But considering the price, it is better to wait for this one out.
BB stock has a 52-week low of $4.37 per share. BlackBerry doesn’t make smartphones anymore. But at a $6.4 billion market value, investors must be reminiscing of the time when it did. As a cybersecurity company specializing in enterprise-critical event management solutions, we have already made the point that this is a good investment. Nevertheless, as a meme stock, BB stock is on a rollercoaster ride, oscillating wildly between two extremes.
Doing my own research, I calculated an intrinsic value of $4.1 per share. My calculations used an 11% discount rate and unlevered free cash flow of $106.5 million, which is the figure for the 2020 fiscal year. I used a growth rate of 10% over a ten year horizon and multiplied the 10th year with 12 to get the sell-off value. I added the net present value figures and divided this number with outstanding share capital, 566.2 million shares, to arrive at the intrinsic value per share. Again, this is just my calculation, and you can disagree on the inputs.
TipRanks tracks four analysts offering 12-month price targets for BlackBerry. The average price target is $9.50, representing a 15.25% downside from its current price. So, the overvaluation concerns are on point.
Great Stock, Bad Timing
Blackberry is a great stock. There is no disputing it stands apart among a sea of meme stocks with iffy fundamentals. Considering these factors, the case is there for investing in this one. But that should only happen once trading closer to fair value since shares are still fundamentally overvalued.
Keep an eye on this one. If shares continue to shed value at an exponential rate, this will become a must-have name for your portfolio.
On the date of publication, Faizan Farooque 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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.