Beware the value trap that is BlackBerry (BlackBerry News, Stock Quote, Chart TSX, NYSE:BB)! With the stock hanging around record lows and little positive traction in sight, portfolio manager Chris Blumas of GlobeInvest Capital Management says BB is going nowhere fast.
There are a number of reasons why a name like BlackBerry might appear attractive to some investors, what with the company’s well-received multi-year turnaround from handset maker to software firm and its pivot towards software and security in the growing field of connected tech.
The company is looking better financially, as well, exemplified by its latest quarter which posted consensus beats on both revenue ($247 million, a 16-per-cent year-over-year increase) and EPS ($0.01 per share versus the Street’s expectation of $0.00 per share).
And finally, even though the company’s share price has tumbled in recent months, the stock has had a number of encouraging rallies in recent years. (All figures in US dollars.)
So what’s not to like? Plenty, said Blumas.
“This is one of those fallen angels,” said Blumas, in conversation with BNN Bloomberg on Thursday. “It’s a business that fell on hard times and they’ve done an exceptionally good job in morphing themselves from a hardware business to a software business. I think that the endgame for this one is that it will likely be acquired. But that’s a speculative bet.”
“To me, this is a value trap. There’s a upper limit in terms of what this business is going to go,” he said.
BlackBerry made a bold move early this year by acquiring Irvine, California-based cybersecurity firm Cylance for $1.4 billion, one which has yet to impress the market, however, as witnessed by BB’s latest quarter. Despite the consensus beats, the stock fell, reportedly in part due to a disappointing revenue contribution from Cylance.
Blumas thinks the waiting game on BlackBerry is going to get tired sometime soon.
“They have some patient shareholders in Fairfax so I think that the structure is there to give them time to complete the turnaround. They’ve made great strides but the stock has done nothing, so to me this is a classic value trap and I would look for something else,” Blumas said.
“My thinking is that Fairfax and some of the other larger shareholders at some point are going to look to put this company in play and get their money back. I don’t think that this business is going to morph and become an acquirer of other software companies and kind of reassert itself as a new business,” he said.