Veteran investors may recall how Canada’s Research In Motion, which sold the wildly successful BlackBerry smartphone in the 1990s and 2000s, was a super stock. And in early 2004, BlackBerry stock — known by the ticker symbol RIMM at the time — built the gold standard for a rare IBD-style chart pattern: the short stroke.
A lot has changed since then.
BlackBerry (BB) doesn’t make smartphones anymore. Yet the midcap firm, with a $5.2 billion market value, actually still beats the market with a 38% gain year to date. The stock finished the second quarter bullishly, up 45%. But Q3 was painful; BB shares slid more than 20%, while the S&P 500 eked out a 0.2% gain and the S&P MidCap 400 dropped 2%.
BlackBerry stock continues to cool since June, when Wall Street analysts downgraded the stock. One reason? Cybersecurity-related sales in the May-ended fiscal first quarter of FY 2022 dimmed by 12% vs. the prior quarter.
Gains have been hard to come by after its latest quarterly results as well. But in recent days, BB is rebounding fiercely. On Oct. 19, shares ripped 14% higher in the heaviest turnover in more than three weeks.
Such price-and-volume action points to serious institutional accumulation. And such gains helped BlackBerry jump almost 9% in October.
Rebounding After Earnings?
On Sept. 22 after the close, the company posted a non-GAAP loss of 6 cents per diluted share in the August-ended fiscal second quarter vs. a profit of 10 cents. Revenue of $175 million fell 32% vs. a year ago. This marked a fourth quarter in a row of shrinking sales. But BlackBerry also posted positive operating cash flow of $12 million.
During a conference call, BlackBerry CEO John Chen noted the company beat top-line expectations across all three major sectors. The firm’s IoT (Internet of Things) unit “performed better than expected.” Chen cited strong design-related activities partially offset the effects of a global semiconductor shortage on production-based royalty fees.
BlackBerry’s negotiations on the potential sale of certain technology patents are ongoing, Chen noted. Yet the firm’s licensing revenue still came in “slightly better than expected.”
Shares are now making a much finer attempt to rebound back above the 50-day moving average, a heavily watched technical level of support and resistance.
Is BlackBerry Stock Bottoming Out?
So, is Blackberry stock a buy?
This story will examine the stock through the lens of IBD’s time-tested, research-driven CAN SLIM method — a seven-point paradigm for successful stock picking. A look at fundamentals, technical action and mutual fund sponsorship can help you make an informed choice.
Company History
Founded in 1984 in Waterloo, Canada, BlackBerry’s internet-enabled smartphones became iconic during the dot-com bubble and even after the Nasdaq’s market top in 2000. During the first half of that decade, BlackBerry became so addictive that some users called their devices “CrackBerry.” Former U.S. President Barack Obama used one in the White House.
But as competition stiffened in the smartphone space and the growth of BlackBerry’s sales and profits lost luster during the back half of the 2000s and early 2010s, the company made a pivotal switch.
Today, the company, led by CEO John Chen, provides security software and services to enterprise and government customers globally. BlackBerry says it secures more than 500 million endpoints, including 175 million cars on the road today. It employs artificial intelligence and machine learning to keep customer data safe and private.
On May 17, the company announced BlackBerry Optics 3.0, a next-generation cloud-based security product, as well as a new zero-trust network access product called BlackBerry Gateway. Earlier in the month, Frost & Sullivan named BlackBerry an innovator in health care cybersecurity. And Chinese EV maker WM Motor said it chose BlackBerry’s QNX branded products to power its advanced W6 SUV.
Clearly, cybersecurity has grown to a majority of BlackBerry’s top line — 61% of the company’s $174 million sales logged in the fiscal first quarter ended in May, in fact.
On Aug. 31, BlackBerry moved from IBD’s Computer Software-Enterprise industry group to the security software industry group. And the cybersecurity group is doing very well lately; in fact, as of early November, it ranks within the top 30 among 197 industry groups for six-month relative price performance.
The company’s president and general manager of BlackBerry’s IOT (Internet of Things) unit, Mattias Eriksson, recently held a fireside chat on the subject. And on July 27, the company said it won a contract from South Korea’s sTraffic, a provider of transport infrastructure systems, to supply the QNX operating system software.
BlackBerry, Meme Stock
Equity and option traders joining the WallStreetBets thread on Reddit and other online social platforms have orchestrated stunning campaigns to send not only BlackBerry stock to stratospheric heights. They’ve done the same with AMC Entertainment (AMC) GameStop (GME), Bed Bath & Beyond (BYND) and Clover Health (CLOV).
BlackBerry stock has also captured attention as one of a cadre of companies that have been heavily sold short in recent years.
Judging by the spectacular move BB stock made in the final two weeks of January, no doubt BlackBerry has symbolized the intention by Robinhood app users and other traders to go after short sellers.
Short sellers sell shares borrowed from a broker. They hope to buy those shares back at a lower price for a tidy gain. But when a stock surges in price, the shorts get forced to buy back shares and close the trade — especially when a trading account is already on margin.
Short covering can act like nitro to a rising stock.
The skyrocketing move by BlackBerry over a four-week time period, going from 6.63 at the start of January to a peak of 28.77 on Jan. 27, illustrated the dangers for short sellers today.
Short interest in BlackBerry stock — or total shares sold short on Wall Street — is no longer extreme.
Short Interest And BlackBerry Stock
Roughly 36 million shares have been sold short, according to data analyzed by MarketSmith. It would take 4 days’ worth of BlackBerry’s average trading volume of 8.8 million shares for the short sellers to buy shares and cover their bearish positions. Put another way, at 6% of the stock’s float of 555 million shares, short interest now sits at a normal level.
Meanwhile, please study BlackBerry stock’s action in the final two weeks of January. BB stock engineered a climactic top. Shares rose 105% during the week ended Jan. 29 before retracing nearly all of that gain by week’s end.
In other words, its vertical-like move was unsustainable.
IBD Ratings Today
BlackBerry’s fundamentals do not measure up to, say, those in IBD’s Long-Term Leaders.
The company’s profits grew vs. year-earlier levels just twice in the past eight quarters. Wall Street expects a net loss of 22 cents a share in the fiscal year ending in February 2022. And now, analysts’ prior forecast of a profit of 3 cents a share in FY 2023 has turned into an estimated net loss of 10 cents.
Since earnings tend to be the No. 1 factor for a stock’s growth prospects, it may come as no surprise that BlackBerry gets lackluster ratings from IBD. The stock recently showed a damp Composite Rating of 28 on a scale of 1 (mauled) to 99 (magnificent). The SMR Rating, which analyzes sales, profit margins and return on equity, is a lowly D on a scale of A to E.
BlackBerry holds an undesirable Earnings Per Share Rating of 8 on a scale of 1 to 99. Generally, you want to focus your watchlist of stocks of those with EPS and Composite scores of 80 or higher.
Who Is BlackBerry Owned By?
That said, institutional ownership has been rising.
Total mutual funds investing in BlackBerry stock dipped to 484 at the end of the second quarter in 2020, when coronavirus ravaged the world economy. Yet that number has grown to as high as 524 in Q3 this year.
A stock seeing growing mutual funds ownership and attracting top-notch institutional players is meeting the I in CAN SLIM, or solid institutional sponsorship. A-rated funds that own a piece of BB stock include Mercator International Opportunities (MOPPX) and Vanguard Capital Opportunity (VHCAX).
On the plus side, BlackBerry stock is still showing decent price strength on a 12-month basis.
Is BlackBerry Stock A Buy?
A 34 Relative Strength Rating means BB stock outperforms only 34% of all companies in the IBD database over the past 12 months. Solid. In general, you’d like to see a score of 80 or higher. A 90 RS Rating or 95? Even better.
Meanwhile, BB is still forming a deep cup. A true handle has not yet formed. Such action would hint at a final shakeout of disenchanted holders who bought at higher prices, eager to get out with a small gain or to cut losses after sitting with a huge paper loss.
So, the current buy point for now is 28.87, 10 cents above the cup’s left-side high. The 20 price level poses as another significant level of upside price resistance. BB struggled to overcome an overhead supply of eager sellers at lower price level.
From that perspective, the stock is not a buy now.
However, a shallower base within the larger consolidation is forming. The action over the past four months resembles a double bottom with a middle peak at 12.39 in between the two sell-offs.
This recent action gives a new buy point of 12.49, a dime above the middle peak, for aggressive investors. So a strong move past 12.39, ideally in accelerating or heavy turnover, would signal an aggressive buy opportunity.
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