What is the right price to buy BlackBerry stock?

Some of the hubbub has died down over BlackBerry (BlackBerry Stock Quote, Chart, News, Analysts, Financials TSX:BB) and its joining the likes of Gamestop in the Reddit Revolution of earlier this year, but while the stock has pulled back to a more reasonable valuation, portfolio manager Bruce Murray says investors should wait a bit longer, as BlackBerry still has a lot to prove.

BlackBerry started the year off with a bang, vaulting to highs not seen in a decade as the erstwhile phone maker was reported pumped by retail investors hoping to stick it to Wall Street by betting on commonly shorted stocks like video game retailer Gamestop (NYSE:GME), cinema chain AMC Entertainment and BlackBerry. All three zoomed up practically overnight, with BB tripling its share price over the last half of January.

And while all three of those names have retained some of their gains in January — Gamestop is still trading above $100 per share compared to the sub-$20 territory it inhabited before January, AMC is currently worth four times its value on January 1 and BlackBerry is now around C$13 per share compared to the mid-$8.00 range it was in at the start of the year — investors would be wise to steer clear of BlackBerry, Murray says, at least until a better window comes along.

“BlackBerry got caught up in the excitement of the last month of trading around GameStop and it’s still trying to recover from the collapse of the phone business,” said Murray, CEO of the Murray Wealth Group, who spoke on BNN Bloomberg on Tuesday.

“I would avoid BlackBerry and maybe look at it again around C$10.00…”

“They provide security software and they’ve got some componentry in the automotive [sector], though they’ve recently backed away from some of that, and they’ve still got a good collection of patents that may deliver some financial reward down the road,” Murray said.

“But I’d be cautious on this stock here just because of the recent run-up,” Murray said.

BlackBerry saw a boost in its share price in December when the company provided more detail about an ongoing partnership with cloud computing giant Amazon Web Services. The pair have been working on BlackBerry’s in-vehicle platform called IVY which aims to be the operating system adopted by most car makers when it comes to monetization, apps and data generation. In essence, BlackBerry and AWS are pushing IVY as the eventual industry standard, a potentially lucrative position considering the current early stage in development of in-vehicle applications and connected tech.

“AWS and BlackBerry are making it possible for any automaker to continuously reinvent the customer experience and transform vehicles from fixed pieces of technology into systems that can grow and adapt with a user’s needs and preferences,” said Andy Jassy, CEO of Amazon Web Services, in a December 1, 2020, press release.

“As automakers seek to race ahead in their digital transformations, BlackBerry IVY empowers them to build their brands and set the standard for connected vehicle services across the automotive industry,” Jassy said.

BlackBerry had been building interest in its development over the years from a hardware company to a software and security-focused business. And while the company is now fully transformed, having given up on phones years ago, investors seem to still be waiting for evidence of a strong growth trajectory ahead.

Last year was a case in point, where the company’s revenue bounced around each quarter from year-over-year increases to decreases and back again. For the company’s most recent quarter, its fiscal Q3 2021 delivered in mid-December, BlackBerry’s revenue dropped 18 per cent year-over-year to $218 million and was under the consensus forecast of $219.7 million. The company’s net loss grew from $32 million or $0.07 per share a year ago to now $130 million or $0.23 per share. (All figures in US dollars except where noted otherwise.)

And while some of that slide can be chalked up to a depressed auto industry for BlackBerry’s connected tech, the overriding concern according to Murray is still about the company’s growth prospects.

“We’d like to see some fundamentals gradually come along and push BlackBerry higher,” Murray said. “These developments they’ve got are slow to build and they’re selling to companies like the automobile business where they squeeze pricing pretty heavily.”

“So, I would avoid BlackBerry and maybe look at it again around C$10.00,” Murray said.

After the Reddit rise in January, RBC Capital Markets analyst Paul Treiber downgraded his rating on BlackBerry from “Sector Perform” to “Underperform,” saying the BB rally had no backing in the company’s fundamentals.

“Based on our view that a material patent sale or licensing settlement agreement has not occurred of the magnitude of the ~$7 billion value creation in the stock, we believe the fundamental justification for the rally in the stock to [more than] $18 per share would only stem from an improved outlook for either BlackBerry’s QNX/BTS automotive business or recurring IP licensing revenue,” Treiber wrote in a January 26 report.