I have been bullish on BlackBerry (BBRY) for the better part of this year. Nonetheless, I think it may be time to throw in the towel. The stock has been on a rollercoaster ride over the past few months. See chart below provided by Finviz.com.
The volatility in the stock has been great. The stock has been whipsawed by conflicting reports regarding the sales results of the different products and services. As of late, the stock seems to be either flat or down regardless of the news. This is a bad sign. In the following sections, I will lay out the reasoning behind the change in stance from bull to bear. I will lay out my perception of the major pros and cons of the company and the stock followed by my conclusion.
The company is vastly undervalued by industry and historical standards trading at an over 21% discount to book value and only nine times free cash flow. BlackBerry is currently trading at a steep discount to the competition as well. The stock is trading at a book value vastly below Apple (AAPL), Google (GOOG) and Nokia (NOK). See chart below.
If BlackBerry can simply get the devices out to the current user base ready to upgrade, it should look great in the coming quarter. The year-over-year numbers will be impressive. With a successful launch of new products, the fundamentals should be much improved.
Cash burn under control
BlackBerry 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. (GM: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 (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
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, sales should be great. According to the Wall Street Journal, BlackBerry's launch of its keyboard-equipped Q10 in the U.K. was a huge success.
Furthermore, CEO Thorsten Heins appeared on Bloomberg TV afterward. Heins said, referring to the device which features a keyboard, "We expect several tens of millions of units."
All these developments sound great. So why is the stock still wallowing near recent lows? That is the dilemma.
Once you lose your mojo you cannot get it back
Blackberry has made several moves to increase its cool factor. First, the company changed its name from RIMM to BlackBerry. Second, the company hired Alicia Keys as a new creative director. Third, CEO Thorsten Heins has showed some spirit and made some great statements regarding the competition. Finally, BlackBerry is running some well-made commercials faulting the innovative features of the phone.
The problem is these moves may have been seen by the public and investors more as a sign of desperation rather than improving the coolness of the company. The lack of positive movement in the stock underpins this thesis.
The company merely treading water
Many investors feel the company is simply treading water. Sure they may do well this quarter and the next. Millions of loyal BlackBerry enthusiasts are expected to make the long-awaited upgrade to the new phones. This may drive the fundamentals higher in the short run, but what happens when this cycle ends? Many expect the company's long-term prospects of successfully converting Apple and Google Android phone users to be slim to none.
Current shareholders are short-term players
I posit due the massive crash in the stock many of the long-term bulls were shaken out. With the recent high volatility, it seems a more temporary trading cadre has taken positions. These types of investors may be prone to jump ship at the first sign of trouble. This does not bode well for the stock long-term.
Price is truth. I expected the stock to be much higher by now. The bottom line is sales and earnings per share are down 47% and 95%, respectively, quarter-over-quarter. Return on equity is -8.67%. The company has a net profit margin of -6.73% and 32% of the float is now short.
Even though the company has a large portion of the current subscriber base poised to upgrade to the new products, I believe this will mostly likely be one of the last hurrahs for BlackBerry. The performance of the company may be great in the short term, but the stock appears to be predicting bad news for the company in the long-term.
Furthermore, with the market at all-times highs and the summer doldrums on the horizon, we may see a correction in the near term. Even though I love the company, I don't like the stock. I always root for the underdog, but unfortunately I think this may be a lost cause. I wish the best to BlackBerry and current shareholders. This stock is a no touch for me at this time. I will need to see a significant trend reversal in the stock's performance based on much improved fundamentals prior to changing my perspective. I wouldn't want to be long or short such a speculative play at this time.
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.