BlackBerry may be oversold, this investor says

Is BlackBerry oversold?

Investors already skeptical about BlackBerry’s (BlackBerry Stock Quote, Chart, News NYSE:BB) prospects have even more reason to worry after the company’s latest earnings miss.

The takeaway? With the stock now below a key support level, it’s best to take your investment dollars elsewhere, says research analyst Brooke Thackray of Horizons ETF, who nonetheless thinks BlackBerry may actually be in oversold territory.

BlackBerry’s share price took a tumble yesterday on the release of the company’s fiscal second quarter results, which missed analysts’ expectations on revenue and came with a lowered forward guidance. The stock, which had been on a slide since early April but had picked up ground over the past few weeks, dropped almost 23 per cent in trading on Tuesday with the release of the quarterly results coming early Tuesday morning.

The security software company reported fiscal 2020 Q2 results for the period ended August 31, 2019, coming in with total non-GAAP revenue of $261 million, a 22 per cent year-over-year growth rate, or GAAP revenue of $244 million, a 16 per cent growth rate. (All figures in US dollars.)

Adjusted revenue from the company’s Internet of Things segment, which includes its enterprise software and technology solutions units, dropped five per cent to $134 million, whereas analysts had been expecting revenue of $150 million from the segment.

BlackBerry’s net loss for the quarter was $44 million compared to a profit of $43 million a year prior, while on a per share adjusted basis, the company met expectations by breaking even.

Looking forward, management now expects fiscal 2020 revenue to have a growth rate of between 23 and 25 per cent, whereas it had earlier predicted growth of between 23 and 27 per cent.

“In the quarter, our QNX, Cylance and Licensing businesses executed at or better than our expectations. We achieved break-even non-GAAP earnings per share and generated free cash flow even with increased investments in sales and product development to support future growth,” said John Chen, Executive Chairman and CEO, in the quarterly press release. “We are encouraged by the positive reception on BlackBerry Intelligent Security, and we have a number of exciting new product launches in the next six
months.”

BlackBerry looked to be on the upswing as the company seemingly rounded the final turn on a multi-year remodelling, with Chen declaring earlier this year that the turnaround from phone maker to software and security specialist had been completed.

But the market seemed to have different views on the stock, which performed well in 2017 but then poorly in 2018. Trading at $5.57 per share as of midday Wednesday, BlackBerry is now down almost 24 per cent year-to-date.

Thackray says that the chart looks dubious now that BB has broken below a support level at $6.70 per share, one which the stock had been bumping up against a number of times in recent years without venturing below it.

And although there’s reason to believe that the market’s reaction to yesterday’s Q2 may have been overplayed, Thackray suggests that investors hang back and wait.

“It probably has become oversold here,” says Thackray, in conversation with BNN Bloomberg on Tuesday. “[But] we’ve broken a key level of support and until it gets back above it, I’d actually look to hold off on it.”