Is BlackBerry Finally Seeing a Turnaround?

With shares of BlackBerry (NASDAQ:BBRY) trading around $9, 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 such as email, voice, instant messaging, SMS, Internet, intranet-based applications, and browsing. Its products and services feature the BlackBerry wireless solution, the Research In Motion Wireless Handheld product line, the BlackBerry PlayBook tablet, software development tools, and other software and hardware.

In early December, BlackBerry shares were hitting 10-year lows amid fresh rounds of pessimism about the company’s future and its next earnings results. And on December 20, when BlackBerry reported a loss of $4.4 billion, the doubters were proved right. But with the bad news came an announcement from BlackBerry’s new chief executive, John Chen, that investors have started to rally around: The company will outsource its hardware business to Taiwan’s Foxconn Technology Group and focus entirely on services and winning back the enterprise market. Since then, BlackBerry shares are up 45 percent on the Nasdaq. On Friday, stocks climbed another 6 percent to $9.09 after a report from Citron Research argued that the stock was undervalued and issued a price target of $15.

T = Technicals on the Stock Chart Are Mixed

BlackBerry stock has struggled to make positive progress in the last several years. However, the stock is currently surging higher and looks poised to continue. 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 between its rising key averages, which signals neutral price action in the near-term.

BBRY

Source: Thinkorswim

Taking a look at the implied volatility (red) 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

67.18%

33%

30%

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

Put IV Skew

Call IV Skew

February Options

Average

Average

March Options

Average

Average

As of Monday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral 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 Mixed 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

-41,950%

-308.89%

83.84%

178.41%

Revenue Growth (Y-O-Y)

-56.25%

-45.02%

9.37%

-35.97%

Earnings Reaction

15.51%

1%

-27.76%

-0.82%

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

P = Excellent Relative Performance Versus Peers and Sector

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

BlackBerry

Apple

Google

Nokia

Sector

Year-to-Date Return

22.04%

-3.63%

2.66%

-3.95%

5.28%

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

Conclusion

BlackBerry provides innovative wireless communication products to consumers and companies worldwide. The company has seen a rise in its stock since CEO John Chen said the company would outsource its hardware business to Taiwan’s Foxconn Technology Group and focus entirely on services and winning back the enterprise market. The stock has not done well in recent years but is currently surging higher. Over the last four quarters, earnings have been mixed while revenues have been decreasing, which has left investors optimistic. Relative to its peers and sector, BlackBerry has been a relative year-to-date performance leader. WAIT AND SEE what BlackBerry does this quarter.

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