BlackBerry Is A Buy, Just Not Yet

Feb.18.13 | About: BlackBerry Ltd. (BBRY)

It has been a wild few months for BlackBerry (NASDAQ:BBRY). As of a few weeks ago that ticker didn't even exist. It is all part of the new, revitalized look at the company formerly known as Research in Motion, whose stock price has taken the shape of a roller coaster worthy of a top-flight amusement park.

The chart looks bad, really bad. Looking back to 2007, BBRY was trading at over $130 per share. Fast forward a few years and the stock has touched lows of $6.22, a 95% discount to its previous highs. To put the decline in perspective, it has come in the form of two precipitous drops of over 50%, a steady downtrend from 2009 through 2011, and a rapidly accelerating downward spiral for the past two years. It bottomed in September 2012 at the aforementioned lows, and has since ridden a neck-jerking roller coaster up into the mid-teens.

BBRY Long Term ChartClick to enlarge

BBRY Short-Term Roller CoasterClick to enlarge

The company's incredible fall from grace has been driven by its lack of innovation, product inferiority, and overall lack of understanding of the shifting smartphone consumer base. The recently released BlackBerry Z10 is the company's first foray into the new technological era, with a focus on applications, style, and a continued push in the commercial market.

From a fundamental financial perspective, BBRY is nearing their tangible asset book value. This is an often-overlooked metric to measure a company's worth. While we as investors often look at a company's total book value, the tangible asset book value discounts goodwill and other intangible assets, giving us a liquidation value.

FY 2012

#s in millions

Total Assets

$13,731

Less: Total Liabilities

- $3,631

Less: Goodwill

- $304

Less: Intangible Assets

- $3286

Tangible Asset Book Value

= $6,510

Common Shares Outstanding

524.2mm

Tangible Asset Book Value Per Share

$12.42

Click to enlarge

The chart above shows the breakdown of BBRY's tangible asset book value. If they were to be liquidated today, it would be at $12.42 per share. At Friday's close, the stock was trading at a 13.9% premium to its TABV. Given the recent negative pricing trend and the volatility of the stock, which has consistently seen intraday trading ranges of 10%+ of the overall price, BBRY could be trading at the TABV very shortly.

BBRY is profitable and despite their cash flow performance in the last fiscal year, they have a proven track record of cash flow positivity. With the launch of the new product line, there is renewed interest in the brand and a pipeline of new products which will help them regain at least a small percentage of market share from their major competitors.

There are two ways to play this stock. The first is to day-trade it and that is risky beyond measure. Unless you have insight into unannounced news about the company, you'll be best served to not go the day-trading route. The volatility has been too wild, the swings too unpredictable.

BBRY is much better suited to be traded as a value stock. It should be noted that, in the short term, a stock can trade far below its TABV, as evident with the earlier-noted lows in September when RIMM traded at a 50% discount to liquidation value. So the stock approaching, or even hitting, $12.42 doesn't indicate that it is an immediate buy. If the stock does continue on its current negative trajectory, start to phase a buying pattern as it approaches the TABV and continue to add to your position if it trades below TABV, confident in the fact that even if the company were to be liquidated, you'd at least recover your principal investment.

BBRY is a buy, just not yet. Be patient and value will be yours.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BBRY over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.