Is BlackBerry Undervalued?

Z10

With shares of BlackBerry (NASDAQ:BBRY) trading around $10, 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 Research In Motion 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 the technologies into their daily lives. The company has also recently rebranded its products, which may offer a boost to their bottom line. However, a recent negative earnings report has the stock hurting.

T = Technicals on the Stock Chart are Weak

BlackBerry stock has been part of a disastrous decline during most of the past few years. The stock on Friday wiped out its year-to-date gains after a negative earnings report. Analyzing the price trend and its strength can be done using key simple moving averages: 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below (source: Thinkorswim), BlackBerry is trading below its key averages, which signal neutral to bearish price action in the near term.

BBRY

Taking a look at the implied volatility and implied volatility skew levels of BlackBerry options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

BlackBerry Options

66.05%

33%

30%

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

Put IV Skew

Call IV Skew

July Options

Steep

Average

August Options

Steep

Average

As of Friday, 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 small amount of call and put option contracts, and are leaning neutral to bearish over the next two months.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. The last four quarterly earnings announcement reactions also help gauge investor sentiment on BlackBerry’s stock. What do the last four quarterly earnings and year-over-year revenue growth 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)

86.87%

-78.23%

-96.08%

-171.43%

Revenue Growth (Y-O-Y)

9.13%

-41.26%

-47.21%

-31.07%

Earnings Reaction

-25.20%

-0.89%

-22.73%

5.04%

BlackBerry has seen decreasing earnings and revenue figures in the past four quarters. From these numbers, the markets have not been very happy with BlackBerry’s recent earnings announcements.

P = Poor Relative Performance Versus Peers and Sector

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

BlackBerry

Apple

Google

Nokia

Sector

Year-to-Date Return

-8.80%

-25.41%

24.22%

-5.32%

4.26%

BlackBerry has been a weak relative performer, year-to-date.

Conclusion

BlackBerry enables consumers and companies worldwide to communicate through its products. However, the company has lost traction to competitors in recent years. The stock has been trading lower for several years now and looks poised to continue this path. Over the last four quarters, investors in the company have not been pleased as earnings and revenue figures have been decreasing. Relative to its peers and sector, BlackBerry has been a weak year-to-date performer. WAIT AND SEE what BlackBerry does in coming quarters.

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