It’s time to short BlackBerry’s stock, this investor says

BlackBerry’s (BlackBerry Stock Quote, Chart TSX:BB) share price has been on the move to start 2019, but is this the beginning of a longer trend or more of a momentary blip?

Likely the latter, says Jason Mann, chief investment officer at EdgeHill Partners, who argues for shorting the stock.

BlackBerry’s transition from hardware to software is getting a boost from the federal government on Friday, as the Liberal government plans on announcing a gift of $40 million to BlackBerry to support its autonomous vehicle technologies, part of $340 million in new funds made available through the government’s Strategic Innovation Fund.

BlackBerry is taking a number of paths in its new focus on software and security. Beyond applying its QNX platform to autonomous vehicles, there’s the secure connectivity of devices within the Internet of Things along with its Spark endpoint management platform.

But whether or not these pursuits will lead to revenue growth seems to be the sticking point for investors.

“They’ve been in this multi-year transition away from their old business into a software business,” says Mann, in conversation with BNN Bloomberg on Thursday. “We’ve been short for the better part of a couple of years and we’re still short today.”

“It goes through these spurts where there’s some real optimism and they have a good quarter, and they’ve got a great balance sheet. But they’re having a tough time trying to generate a real business with the use of that balance sheet,” he says.

Like a number of names in the tech sector, BlackBerry has done well over the first stretch of 2019, rising 16 per cent in value over since January 1. But the stock had a poor year in 2018, dropping 31 per cent.

“Its price momentum is pretty poor — it scores in the bottom ten per cent,” says Mann. “And it’s still not cheap at 16x EBITDA.”

“As it stands, it’s got a negative return on equity and it’s expensive on an earnings basis. It’s still a short for us,” he says.

Between January 15 and January 31, short interest in BlackBerry fell 2.1 per cent from 22,651,063 shares to 22,180,631 shares.