The earnings report and the release of the Z10 phone were some of the main drivers of the stock's performance. Yet these were mere opening acts in the ongoing BlackBerry saga. BlackBerry is a buy here. In the following sections, I will lay out my bull case for the stock going forward.
The company is vastly undervalued by industry and historical standards trading at a nearly 20% discount to book value and 10 times free cash flow. BlackBerry is currently trading at a steep discount to the competition as well. The stock is trading vastly below Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) and Nokia (NYSE:NOK). See chart below.
If BlackBerry can simply get the devices out to the current user base ready to upgrade, it should look great. The year over year numbers will be impressive. The point to focus on regarding the fundamentals is the improving numbers going forward. With a successful launch of the new products, the fundamentals should be much improved.
Cash Burn Under Control
BlackBerry has not gotten back into the black so to say. But it has lost less money than expected for the last two quarters. Furthermore, it has managed to hold on to its cash. Many projected the company would be out of cash by now. Nevertheless, BlackBerry has done a tremendous job managing its burn rate and cash levels have remained intact.
The Competition Is Soft
The Apple iPhone 5 has received complaints for not having a large enough screen, a weak battery and no new features. A Google Android phone, the Samsung Elect Ltd. (OTC:SSNLF) Galaxy S IV, was recently launched and seemed to fall flat with complaints that it does not live up to the hype. The plethora of phones put out by Nokia using Microsoft's (NASDAQ:MSFT) Windows 8 haven't seemed to be able to pick up any meaningful traction or market share either. The door is wide open for BlackBerry.
Management Is Doing A Good Job
In January of 2012, the company announced the appointment of Thorsten Heins as its new president and CEO. Former co-chairman and co-CEO Mike Lazaridis became vice chairman, after Jim Balsillie, former co-CEO, resigned from the board. This was a great move in my view. Thorsten has really done a bang up job since taking over the reins. I have been impressed with the way he has carried himself and marketed the products.
The Q10 Phone Launch
If the initial results of the launch of the Q10 phone this weekend in the U.K. are any primer to overall sales, the stock should continue higher.
The company released the Q10 in the U.K. over the weekend. According to the Wall Street Journal, BlackBerry launched its keyboard-equipped Q10 at U.K. department store Selfridges this weekend. Per Selfridges, the Q10 launch is their "fastest-ever selling consumer electronics product."
Furthermore, CEO Thorsten Heins appeared on Bloomberg TV Monday afternoon. Heins said, referring to the device which features a keyboard,
"We have very, very good first signs already after the launch in the U.K This is going into the installed base of more than 70 million BlackBerry users so we have quite some expectations. We expect several tens of millions of units."
The downside risk is the phones won't sell. They are priced at a premium. The company has not released a low end phone to address emerging markets. Although, Thorsten hinted that the launch of the Q10 would not be all that is coming this year. The cash burn issue is always in the back of investors' minds as well. The company is not yet turning a profit. Last quarter BlackBerry reported a negative profit margin of 6.73%.
The Bottom Line
The company has a large portion of the current subscriber base waiting for the Q10 phone with the QWERTY keyboard. I think this will be a big catalyst for the stock in the second half of 2013. The stock is a buy here, but scale in to the position over the summer months. With the market at all-times highs and the summer doldrums on the horizon, we may see a correction in the near term.
Furthermore, always remember to maintain a well-balanced diversified portfolio containing several asset classes. Use this information as a starting point for your own due diligence and research methods before determining whether or not to buy or sell a security. If you choose to start a position in any stock, I suggest layering in to reduce risk.
Additional disclosure: This is not an endorsement to buy or sell securities. Investing in securities carries with it very high risks. The information contained within this article is for informational purposes only and is subject to change at any time. Do your own due diligence and consult with a licensed professional before making any investment.