Following rallies in GameStop Corp. (, Financial) and AMC Entertainment Holdings Inc. (, Financial) earlier this year, shares of BlackBerry Ltd. (, Financial) got a small boost on Thursday morning from traders on the social media platform Reddit.
The stock was up 23% in early trading, building on gains of around 32% and 15% in the previous two trading sessions, before retreating lower after AMC announced a stock sale.
While speculative trading in meme stocks has become a major trend on Wall Street this year, putting pressure on short sellers, there is a risk to it as well for those who are left holding the bag when shares inevitably return to their true valuation. Sporting a $9.99 billion market cap, the cybersecurity company’s U.S.-listed shares were trading around $17.79 on Thursday with a price-book ratio of 6.3 and a price-sales ratio of 10.1. As a result of the rally, the GF Value Line suggests the stock is significantly overvalued currently.
This is not the first time the Canadian tech company has seen its share price rise this year either. In his first-quarter commentary for the (Trades, Portfolio) Fund, (Trades, Portfolio) noted BlackBerry’s stock “rose markedly in January” after being “targeted by Reddit users as an attractive buying opportunity.” Between Jan. 14 and Jan. 27, the stock appreciated nearly 300%, pushing the share price well beyond Herro’s estimate of its intrinsic value. As such, he exited the position in favor of opportunities with more upside potential.
On March 30, BlackBerry, which was once known as a leading smartphone brand before pivoting to focus on cybersecurity, released its fourth-quarter and full-year 2021 financial results. For the three months ended Feb. 28, the company posted an earnings loss of 56 cents per share on $210 million in revenue, which were both down from the prior-year quarter.
For the year, it recorded a loss of $1.97 per share on $893 million in revenue. These were also down from the previous year.
Despite these developments, BlackBerry Executive Chairman and CEO John Chen highlighted in a statement it was “an exceptional year to navigate” and the company’s QNX operating system continued to recover “despite new challenges from the global chip shortage.”
“We are seeing tangible signs that our efforts and improvements in go-to-market are starting to pay off and have a positive impact,” he said. “This quarter we generated strong sequential billings growth for our Software and Services business, including significant improvements for both Spark and QNX. Total billings are back to pre-pandemic levels.”
BlackBerry is scheduled to report its fiscal first-quarter 2022 earnings on June 24.
GuruFocus rated BlackBerry’s financial strength 5 out of 10. In addition to having a Sloan ratio that is indicative of poor earnings quality, the Altman Z-Score of 2.26 warns the company is under some pressure since its revenue per share has declined over the past five years.
The company’s profitability fared even worse with a 2 out of 10 rating. Although the operating margin is expanding, BlackBerry’s negative returns on equity, assets and capital are underperforming a majority of industry peers. It also has a predictability rank of one out of five stars. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.
Of the gurus invested in BlackBerry’s U.S.-listed shares, (Trades, Portfolio) has the largest stake with 8.25% of outstanding shares. Other top guru shareholders include (Trades, Portfolio), (Trades, Portfolio), (Trades, Portfolio), (Trades, Portfolio), (Trades, Portfolio), (Trades, Portfolio), (Trades, Portfolio), (Trades, Portfolio) and (Trades, Portfolio).
