BlackBerry (NYSE:BB) isn’t what it used to be. The company that once was the leader in smartphones has spent the last few years trying to salvage BB stock by pivoting to cybersecurity.
In the four and a half years since BlackBerry left smartphones behind, the new business on occasion has attracted optimism from the market. In 2017, for instance, BB stock rallied 62%. Shares gained nearly 50% in the first few months of 2019.
Most recently, and most notably, BB stock soared in late January. The catalyst then, however, wasn’t sustainable. BB simply got swept up in the Reddit-driven mania that sent a number of stocks soaring on vague hopes for a “short squeeze.”
Setting aside the fact that shorts aren’t terribly interested in the stock — roughly 7% of shares outstanding were sold short at the beginning of 2021, per data from YCharts — a squeeze of any kind by definition is a short-term phenomenon. It’s not part of a long-term investment case.
That long-term case seems weak. In fact, so does the short-term case: traders tried to pump BB stock again last week. It didn’t take. Shares fell nearly 8% across the week’s five trading sessions.
Despite that decline, BB stock still has soared so far this year. Those gains too may turn out to be short lived.
The Case for BB Stock
Let’s be fair. As with most stocks in the market, there is a case for BB stock. This isn’t a shell company, or a pump and dump.
In fact, on its face, the argument for the stock has some logic. Yes, BlackBerry (going back to when it was still known as Research In Motion) got outcompeted badly in smartphones. But that business is gone, and those executives are gone. Stock prices are based on what will happen in the future, not what happened in the past.
The one aspect of the smartphone business where BlackBerry always maintained a sterling reputation was in security. BlackBerry, for instance, was always the choice of U.S. government officials.
So BlackBerry is looking to take that long-built expertise and that long-held reputation into the software market. Part of that effort includes wooing the very same federal government.
BlackBerry also has its QNX operating system, acquired back in 2010, that’s of use in a variety of industries. The most intriguing application is in connected and autonomous vehicles. Cybersecurity risks in the automotive field are high: you may remember the “white-hat” hackers who hijacked a Jeep Cherokee back in 2015 and 2016.
So BlackBerry has real opportunities for growth. Cybersecurity in general is facing rising demand. If BlackBerry can capture even a portion of that demand, BB stock would seem to have room for a solid rally.
If Not Now, When?
The core problem for BB stock, however, is that the same exact case has held since September 2016. Nothing’s really happened.
At the beginning of 2017, shares traded modestly below $7. At the beginning of 2021, they were about 4% lower.
In fiscal 2018 (ending February), the first full year after the disposal of the smartphone business, revenue was $932 million. On an adjusted basis, BlackBerry earned 14 cents per share.
In fiscal 2021, with three quarters officially reported, Wall Street expects adjusted EPS of 18 cents, and revenue of $943 million.
An optimist could argue that at least BlackBerry isn’t falling behind. But that’s actually not the case.
Over those three years, cybersecurity demand and revenues have grown. There are other companies in the sector that have doubled sales over the same stretch.
Given the tailwinds behind both broader cybersecurity and more narrow automotive demand, relatively stagnant performance simply isn’t good enough.
The Bottom Line on BlackBerry Today
It bears repeating: BlackBerry still has a chance.
But it also bears repeating: the company hasn’t shown much progress so far. And yet BB stock has had a big year.
Even with a big pullback from Reddit-driven highs, BB still has rallied 66% so far in 2021. Put another way, BlackBerry has added more than $2 billion in market capitalization in two months.
There’s little, if any, fundamental justification for that move. The same is true of the more than 50x multiple to FY21 earnings.
Even the choice of BB as a squeeze target is odd. It’s not as if short sellers were hammering on the company. The balance sheet is in fine shape; BlackBerry hasn’t used the rally to raise capital, as some of the other WallStreetBets winners have done.
BB stock has risen more than half, yet this essentially is the same company it was two months ago. That’s one problem — but it’s not the biggest problem.
The biggest problem is that this essentially looks like the same company it was three years ago. That has to change.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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