Is BlackBerry a Risky Investment?

With shares of BlackBerry (NASDAQ:BBRY) trading at around $15.96, is BBRY an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

BlackBerry has performed well over the past year, but is this trend sustainable? The biggest issue for the company is revenue. There have been substantial revenue and earnings declines on an annual basis. In addition to that, revenue has declined on a quarterly basis. The only good news is that earnings have improved on a quarterly basis. However, without top-line growth, the end result isn’t likely to be a good one.

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The keyless Z10 is a decent device, but a decent device isn’t good enough when you’re going up against the likes of Apple Inc. (NASDAQ:AAPL), Google Inc. (NASDAQ:GOOG), and Samsung. There is more potential with the Q10 because many people are attracted to the keyboard design. The demand for the Q10 is good (where it has already been released), but there are supply and timing issues. There is also a “cool” issue. The Q10 is loved mostly by the mature crowd, whereas the biggest growth potential is with the younger crowd. BlackBerry would need to spend a great deal of money on marketing to alter its image, but this would be high risk considering the fact that results would be questionable. However, there is potential for the Q10 for enterprise customers.

Even if the Q10 surpasses expectations, what is the long-term game plan for BlackBerry? How is this company going to compete with Apple, Google, and Samsung? This is a steep uphill battle.

The chart below compares fundamentals for BlackBerry, Apple, and Google. Evidently, BlackBerry doesn’t stack up when it comes to fundamentals.

BBRY AAPL GOOG
Trailing P/E N/A 10.87 26.34
Forward P/E N/A 10.32 16.56
Profit Margin -5.83% 23.46% 20.92%
ROE -6.42% 33.34% 16.36%
Operating Cash Flow 2.30B 55.26B 16.56B
Dividend Yield N/A 2.70% N/A
Short Position N/A 4.40% 1.50%

Let’s take a look at some more important numbers prior to forming an opinion on this stock.

T = Technicals Have Strengthened

BlackBerry hasn’t performed well over a three-year time frame, but it has been a strong performer over the past year. It has also outperformed Apple and Google year-to-date as well as over the past month.

1 Month Year-To-Date 1 Year 3 Year
BBRY 16.64% 34.04% 34.83% -76.70%
AAPL 6.29% -13.66% -18.20% 76.87%
GOOG 11.38% 24.40% 45.39% 74.12%

At $15.96, BlackBerry is trading above its averages.

50-Day SMA 14.75
200-Day SMA 13.21

 

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E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio for BlackBerry is stronger than the industry average of 0.30. BlackBerry has no long-term debt. Longs like to point this out, and it’s definitely a positive, but without revenue growth, it doesn’t mean much.

Debt-To-Equity Cash Long-Term Debt
BBRY 0.00 2.65B 0.00
AAPL 0.00 39.14B 0.00
GOOG 0.10 50.10B 7.38B

 

E = Earnings Have Weakened

Earnings and revenue have weakened on an annual basis.

Fiscal Year 2009 2010 2011 2012 2013
Revenue ($) in billions 11.07 14.95 19.91 18.42 11.07
Diluted EPS ($) 3.30 4.31 6.34 2.22 -1.23

When we look at the last quarter on a year-over-year basis, we see a significant decline in revenue. Revenue has also declined on a sequential basis. However, earnings have improved on a sequential basis.

Quarter Feb. 29, 2012 May. 31, 2012 Aug. 31, 2012 Nov. 30, 2012 Feb. 28, 2013
Revenue ($) in billions 4.18 2.81 2.87 2.73 2.68
Diluted EPS ($) -0.2385 -0.99 -0.45 0.02 0.1870

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

The good news is that mobile is still in its infant stages. There will no doubt be growth. On the other hand, the consumer is weak. Consumers are beginning to look for cheaper alternatives for everything, including mobile devices. Perhaps BlackBerry can use this to its advantage in the future.

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Conclusion

BlackBerry is a company with weak margins, highly questionable growth potential, and the fiercest competition imaginable. However, while many analysts don’t like the long-term picture, they do see short-term potential with the stock price due to low expectations. That being the case, BlackBerry is a WAIT AND SEE.

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All content posted should never be considered professional advice. Please do your own research and consult with a professional financial advisor before making any investment decisions.