There’s a lot going on on Wall Street and BlackBerry (NYSE:BB) has been caught up in the mix. At one point last month, BB stock gained almost 300% as it rallied in nine straight sessions.
What in the world is going on?
BlackBerry stock has been caught up in the Reddit short squeeze hoopla. Essentially, a bunch of traders have recently been looking for stocks to squeeze higher. When these buyers step into the stocks, other traders and institutions step in too, knowing there should be some easy money to be made.
Of course, it’s not really “easy money” for everyone. Someone has to lose and it will be those that hold on too long.
Normally I’m an advocate for patience. Those that trade around a position for a few days or weeks may make a tidy profit. But those that buy high-quality businesses and hold on for the long-term make a fortune.
This case is different though and the reasoning is simple: BB stock is not a high-quality holding.
Take a Pass on BlackBerry
BlackBerry’s glory days are well behind it. At one point, it was the dominant play on smartphones, but it refused to adapt to consumers’ wants and needs. As a result, the company fell off a cliff.
While the company is trying to reinvent itself around software, security and automotive, it’s just not commanding the type of market strength it once had.
To be fair, BlackBerry should be complimented on its transformation. It took an enormous blow from its crippled smartphone business and had to completely pivot industries. That’s hard to do and often results in failure.
Management has migrated BlackBerry into a different direction and has done it with some success. But as an investment, there’s just nothing here that’s juicy enough to sink our teeth into.
For instance, BlackBerry most recently reported earnings in December, with shares falling almost 16% in response. Revenue of $224 million fell 20% year over year and slightly missed expectations. Earnings were around breakeven, with a profit of 2 cents per share.
For FY 2021, consensus estimates call for a 14.4% dip in revenue to $941 billion. For now, expectations call for 8.6% growth in FY 2022 to $1.02 billion — less than what investors saw in 2020. Two-year estimates put BlackBerry back to the $1.1 billion range in revenue.
Earnings are forecast to jump to 18 cents per share this year, but then fall back to 15 cents per share next year.
Who knows, maybe BlackBerry surprises us with renewed strength in the coming year. However, the company has not earned the benefit of the doubt from investors. Revenue has been between $900 million and $1.3 billion for years. It’s simply too choppy and too sloppy.
Sell BB Stock Into Strength
Again, I readily give credit where credit is due and I think BlackBerry deserves some credit for even being in the realm of discussion at this point. However, it’s too inconsistent for me to consider it a worthwhile investment.
Look at the revenue for its fiscal years: $1.3 billion in 2017, $932 million in 2018, $904 million in 2019 and $1.04 billion in 2020. 2021 is almost in the books, with revenue likely coming in around $950 million.
We want a company that can steadily grow its sales. Maybe one day it will be BlackBerry, but it’s not ready yet. As a result, we want to sell any long BB stock into this recent strength.
Unfortunately, the recent strength in BlackBerry isn’t a result of improving fundamentals. It’s a result of investors looking for short-squeeze candidates.
It took years for BB stock to finally get back above $15. The fact that it went above $25 would have been a great opportunity to unload one’s long position. Obviously investors must do what works for them. However, if I’ve been long BlackBerry from anywhere under the 200-day moving average (near $8.30), I’m taking profits up here.
Perhaps BB stock goes back to $20-plus. Maybe it dips below $10 soon. I don’t know. To be frank, it doesn’t matter to me. BlackBerry doesn’t have an investable business at this time and I’m not here to play short-squeeze games.
I’m avoiding BlackBerry at this time.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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