On Monday, out of 20 posts published on Wall Street Bets in the /r/wallstreetbets subreddit, seven were dedicated entirely to BlackBerry. Reddit users were very interested in the BB stock advising other members to buy it. However, it has to be said that BlackBerry’s fundamentals should be looked at carefully despite the general Reddit euphoria. BlackBerry might, one day, play a role in cybersecurity for the electric vehicle (EV) and smart car industries.
The Reddit Community
The Reddit (Pipedrive) investor community is an intriguing beast. Using self-described “baked-in” human psychology, the community makes money for the managers that run the subreddit. It takes a high-IQ user base to be on Reddit and generate additional business opportunities for a network of tens of thousands of free-traffic members. I regularly find great information, analysis, and feedback from members on my paid newsletter, Market Adventures. Regular readers have called me the “Glass half full” investment analyst. There are many ETF analysts who can write a whitepaper and carry their analysis to the level of creating a marketing campaign. I take the opposite approach. I always look at each investment opportunity as an incomplete picture.
Fundamental Valuation
Like most of the high-growth stocks, BlackBerry (BB) has seen its valuation unfairly plagued by momentum investing. The stock is currently trading in the top two quadrants of traditional valuation metrics, but it also has a serious moat to disrupt the self-driving car, autonomous vehicles, and autonomous logistics businesses. BlackBerry’s ttm P/S ratio (TTM) is -19.1. However, this conservative calculation does not factor in the $1.3 billion in cash on the balance sheet. After paying down the convertible debt, BlackBerry has a net cash position of $1.5 billion, or $11.14 per share. Unlike the initial approach to discounted cash flow, the discounted free cash flow method adjusts the earnings from the last quarter back to normal trends of growth.
Momentum Investing
An impromptu call for a second look at a struggling stock that has seen its share price crash by more than 60% over the last year is made in this lively recent Reddit conversation. Last month, Apple had more or less stabilized in recent months, a rather peculiar comment which resulted in some readers suggesting Apple might go to zero. I’ve also questioned how Apple and Facebook (NASDAQ: FB) are set to generate healthy shareholder returns amid a fundamental stock valuation that has crushed the broader market in recent years. Following another retreat over the last month, both Apple and Facebook are up nearly 10% for the month. Perhaps it was just a few trading days, or perhaps the massive power of momentum investing has been tamed a little.
BlackBerry’s Competitor
Just like Apple, BlackBerry (BB) is struggling to reinvent itself. Canada’s best-known technology company, BlackBerry, has reinvented itself from a phone manufacturing company to a provider of cybersecurity services. BlackBerry’s $9.5-billion acquisition of security software maker Cylance in August of 2017 has given the company a solid foothold in the cybersecurity market.
Conclusion
BlackBerry (BB) is surging to new price levels. Analysts do not fully understand the margin of safety currently priced in the stock. Momentum investors continue to bet on a BlackBerry turnaround, although the intention might be shorting it anytime soon. The truth is that BlackBerry is a volatile stock: sometimes it rises quickly, while other times it falls, as it happened in 2017. BlackBerry still remains a volatile stock after its 45% fall in 2017. Momentum investors look for companies with large market caps, and BlackBerry is not a giant company by any means. Since momentum investors look for a large company growing quickly, BlackBerry’s turnaround story could not be that attractive for some.
