BlackBerry’s stock is “wickedly oversold”, this fund manager says

You may not have seen BlackBerry’s (BlackBerry’s Stock Quote, Chart, News TSX:BB) recent collapse coming but the fallout has so far been worse than expected — and undeserved, says technical analyst Keith Richards of ValueTrend Wealth Management, who argues that short-term traders should be able to make some money on the stock.

BlackBerry is continuing its plunge this week, with the stock down almost four per cent as of late-day Tuesday. That makes it a dismal past couple of weeks over which shares fell sharply in response to the company’s latest quarterly earnings, with shares now down 34 per cent since September 24.

BlackBerry delivered its second quarter fiscal 2020 financials featuring break-even earnings and non-GAAP adjusted revenue of $261 million. While the earnings were in line with analysts’ estimates, the top line was not, as the Street was calling for $266 million. Importantly, BlackBerry reported a five-per-cent decline in sales from its enterprise software and technology solutions (ESS) segment, which has been billed as its growth centre going forward. ESS brought in $134 million, which was less than the consensus estimate of $150 million. (All figures in US dollars except where noted otherwise.)

“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.”

But the selloff has been overdone, says Richards, who spoke to BNN Bloomberg on Monday.

“(BlackBerry’s stock) is wickedly oversold, so a short-term trader might be able to take advantage of that move, if you look at RSI and some of these other technical indicators…”

“It’s wickedly oversold, so a short-term trader might be able to take advantage of that move, if you look at RSI and some of these other technical indicators. [BlackBerry’s] RSI has moved from 20 to 25, and it’s considered oversold if it’s 30,” Richards says.

“So, every indicator is flashing that it’s oversold, but that’s just short-term stuff,” he says. “We own the stock and it has been probably our single-biggest drawdown. Thankfully, we bought a small position. We knew it was a high-risk trade when we bought it. Originally, it was moving in an upward-sloping trend channel and it had support at around C$9.00. It bounced off of that numerous times, went up to ten bucks recently and then now it’s at C$7.00,” he says.

The knock on BlackBerry seems to be that after years of working on refashioning itself as a software and security company to the IoT and autonomous vehicle spaces, the company has yet to generate the expected revenue or even indicate from where it will come.

“This was going to be the year they started to grow [total] revenues by at least double digits. That hasn’t happened,” says CIBC analyst Todd Coupland to the Globe and Mail on October 1.

Richards says that he’ll be selling his company’s BB stock as soon as it makes up some of the ground it has lost.

“All I’m doing as an unfortunate owner of this stock is looking for a bounce and then get out because the Street hates it and there’s not a lot of support that might help you get beyond 50 cents or something,” says Richards.

“We have to move on, and it’s been a big haircut for us but thankfully our original position was a half-sized one in the portfolio. We’re bullish [right now] so we’ll sell and buy something better,” he says.