When you hear the word "BlackBerry" what image comes to mind? For most people, BlackBerry (NASDAQ:BBRY) represents an era long gone, that of the "business phone." BBRY is a terrific example of why - in some cases - first movers are actually at a disadvantage. The company hit it big, became complacent, grew inefficiently, and stagnated, while Apple (NASDAQ:AAPL) and other companies pushed beyond the original standards set by the Canadian company. The stock has been a complete failure, down from peaks of over $200/s in 2007, the company had a slight turnaround in share price as EPS showed moderate profitability; however, with the most recent quarter's performance and outlook, the company's stock is back in the dog house. This aside, I believe based on the company's recent share price, potential catalysts for future growth and potential short squeezes - most importantly the company's fundamental financial metrics - BBRY is screaming buy more than ever before, even if most investors aren't hearing it. After reading this article, if this is a trade that appeals to you, and you have the stomach to withstand the big swings with a small portion of your portfolio, as do I, then I would begin dollar-cost averaging as soon as possible. I also would advise you to read my article on AMD for a similar distressed asset investment.
Back to the Fundamentals
At the end of the day, the single main selling point of BBRY is the company's fundamental financial position. The company is in a place now where it has become a very attractive target for the right firm to buy out, or more likely, be taken private. The company's financials are so impressive that, I believe, if the firm shut down tomorrow and liquidated, you would likely receive a value higher than the current share price. With 524M shares outstanding, BBRY has ~$3/s in cash and cash equivalents on hand. In addition, the company has over $2/s in short-term investments and another ~$5/s in receivables. After taking liabilities into account, the balance sheet has approximately $18/s in book value, with just barely over half of the company's market cap in the form of cash. A recent article offered a skeptic view, however, I do not see how one quarter and an issue of working capital nuance affect the ability of a vulture investor to make money off BBRY at the current share price. Like the author said, the company truthfully has a "fortress" balance sheet. Lastly, one often overlooked asset particularly relevant in this case is the company's patent portfolio. This alone could prove a huge asset to shareholders, particularly in a liquidation where bidding drives the prices very, very high.
Future Upside Potential
Again, the core of why I am planning on buying BBRY shares is the balance sheet, and the fact that it's worth the risk/reward tradeoff, however, believe it or not I actually see some positives in regards to the company's ability to navigate its own return to success, without the need for a buyout or liquidation. The company has several talking points, most notably, a phenomenal enterprise solution. In addition, this is a company that could generate cash without device sales. Obviously, it will need device sales to remain a viable competitor in the ever evolving smartphone market; however, the company receives a sizeable chunk of change from income related to monthly services. As we approach the limits of smartphone hardware, the market will gravitate towards the phones that cater best to the needs of the OS user, and I believe that BBRY has one of the most compelling, overlooked platforms out there. Service and software have become the focus of BBRY, and in this sense I believe the company is being proactive, despite the issues faced in the way of apps. The company is rolling out beta invites for BBM on Android and iOS, which will help to maintain the company's relevance to users of other platforms. All this being said, the main point to take away is that the company is focused on building the software infrastructure at the moment that will be necessary for future devices' success, like the recently leaked potential game changing flagship "Z30".
BBRY is a badly bruised competitor in the smartphone arena, and numerous writers, investors and analysts have written off the company as long gone and irrelevant. I believe that the company represents a compelling distressed investment at the sub $10 price level, due in most part to a fortress balance sheet. In addition, the company has a solid backing in the enterprise segment, and with the rollout of the innovative BB10 platform, future devices stand to benefit. As smartphone users begin to overlook specs as we approach the limits of the hardware, there is a chance that BBRY will be there to reap the rewards, especially in emerging markets where the company is actually doing exceptionally well. I plan on biting the bullet and dollar-cost averaging into the stock on the hopes of a potential buyout. With roughly 30% short interest, it would certainly be a squeeze to look forward to.
Disclosure: I am long BBRY. 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.