Is BlackBerry a Worthwhile Investment?

With shares of Research In Motion Limited (NASDAQ:BBRY), which officially changed its name to BlackBerry early this year, trading around $14, 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:

T = Trends for a Stock’s Movement

BlackBerry is a designer, manufacturer, and marketer of wireless solutions for the worldwide mobile communications market. Through the development of integrated hardware, software and services, it provides platforms and solutions for seamless access to information, including email, voice, instant messaging, SMS, Internet and intranet-based applications and browsing.  Its portfolio of products, services and embedded technologies are used by thousands of organizations and millions of consumers around the world and include the BlackBerry wireless solution, the RIM Wireless Handheld product line, the BlackBerry PlayBook tablet, software development tools, and other software and hardware. Several economies around the world are growing and adopting new technologies in their daily lives. Also, the company has recently rebranded its products which may offer a boost to their bottom line. With populations around the world incorporating mobile products into their lives at an increasing rate, as one of the top providers, BlackBerry is poised to see a rise in profits.

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T = Technicals on the Stock Chart are Mixed

BlackBerry stock is seeing a strong bounce after a few years of increased selling pressure. The stock is now consolidating a bit after a strong recent run so it may need time before choosing a direction. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, BlackBerry is trading around its rising key averages which signal neutral price action in the near-term.

BBRY

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Research In Motion options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Research In Motion Options

75.82%

93%

90%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Steep

Average

August Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on BlackBerry’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for BlackBerry look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-78.23%

-96.08%

-171.43%

-174.44%

Revenue Growth (Y-O-Y)

-41.26%

-47.21%

-31.07%

-42.66%

Earnings Reaction

-0.89%

-22.73%

5.04%

-19.05%

BlackBerry has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been disappointed with BlackBerry’s recent earnings announcements.

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P = Excellent Relative Performance Versus Peers and Sector

How has BlackBerry stock done relative to its peers, Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), Nokia (NYSE:NOK), and sector?

BlackBerry

Apple

Google

Nokia

Sector

Year-to-Date Return

19.55%

-20.39%

27.10%

3.29%

15.22%

BlackBerry has been a relative performance leader, year-to-date.

Conclusion

BlackBerry provides innovative communications products to consumers and companies across the globe. The stock has been the subject of intense selling but is now recovering a bit. Over the last four quarters, investors have been disappointed with the company as earnings and revenue figures have been decreasing. Relative to its peers and sector, BlackBerry has been a year-to-date performance leader. WAIT AND SEE what BlackBerry does in coming quarters.

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