Is BlackBerry’s stock just a lottery ticket?

BlackBerry (BlackBerry Stock Quote, Chart, News, Analysts, Financials TSX:BB) has been a yo-yo of a stock this year, leaving investors wondering whether the recent rise is legit or just part of the ongoing Reddit rampage across the markets. Either way, investor Lorne Steinberg advises there’s much less risky plays in the tech sector for your hard-earned cash.

“BlackBerry is still working on evolving the company, and figuring out which way it wants to go,” Steinberg said.

“There was a bit of a hue and cry about the proposed pay package for the CEO recently [but] when we’re looking at the technology sector and mobility sector, we just see so many other better places to be with companies that have consistent earnings growth and great opportunities,” he said.

“We’d look elsewhere. For us, there’s just too much risk in BlackBerry’s strategy,” Steinberg said. “They’ve been struggling for a number of years.”

Canadian software and security company BlackBerry posted a beat in its latest earnings last week, one which hasn’t stopped the stock’s slide over much of June. BlackBerry saw revenue drop over its fiscal first quarter 2022 from $206 million a year ago to $174 million, with a loss of $62 million or $0.11 per share compared to a loss of $636 million or $1.14 per share last year at the start of the pandemic. On an adjusted basis the Q1 2022 showed a loss of $0.05 per share, while analysts had been calling for revenue of $172 million on an adjusted loss of $0.06 per share. (All figures in US dollars except where noted otherwise.)

“This quarter we aligned the business around the two key market opportunities – IoT and Cyber Security. In IoT we are pleased with the strong progress of the auto business, despite global chip shortage headwinds,” said John Chen, Executive Chairman & CEO, in a press release.

“On the Cyber Security side, we announced two new significant product launches as part of our XDR strategy – BlackBerry Gateway and Optics 3.0. We continue to see strong pipeline growth for our new UES products,” Chen said.

BlackBerry’s share price was mired in sub-C$10.00 territory for over a year before the stock started popping this past December on news from its partnership with cloud company AWS on its connected car platform IVY. That carried on into the new year before BB got wrapped up in the first wave of social-media inspired retail investment in a number of highly shorted stocks, including GameStop, AMC and Bed, Bath and Beyond.

The mania took BlackBerry’s share price to over C$30.00 by late January before dropping hard over ensuing weeks. A second Reddit wave started in late May and brought BB back to C$20.00 but the stock is now trading closer to C$15.00.

Portfolio manager Abhay Deshpande of Centerstone Investors spoke to CNBC on Monday and compared BlackBerry to a lottery ticket, saying the company’s fundamentals don’t match up with the share price growth this past six months.

“If you read the report and if you read the documents you’ll see: management’s telling you one thing and the market is hearing something totally different,” said Deshpande.

Deshpande said BlackBerry has plenty of competition from Big Tech when it comes to the cybersecurity and connected vehicle markets, which makes the stock a risky play.

“You’re paying a huge amount of market value for their prospective of success. You’re almost saying your hopes aren’t guaranteed to get that success when actually management will tell you it’s an intensely competitive industry,” Deshpande said. “They’re all trying to create a standard for the automotive business [but] the success is not guaranteed.”

Deshpande also has a bone to pick with management’s reporting, saying the picture being painted by BlackBerry’s continued evolution from smartphone maker to software company has been murky in places.

“Yes, they have been transforming the business for three years [but] they made comparing results extremely difficult because every single year they change how they present themselves to shareholders,” Deshpande said. “And they tell you themselves, ‘Do not rely on the past.’”

“We’re at a point where basically it’s going to be the loudest voice that wins. I’m not particularly good in that kind of a debate, and the fundamentals are really determined where the business’s stock market and business’s value settle out.”

Steinberg said there are better options in tech than BlackBerry, including US giants Google and Microsoft.

“There’s Alphabet, which is Google, which besides the ad business and everything else has their hand in so many other things,” Steinberg said. “And Microsoft, boring old Microsoft, which has become a growth story again and is using its cash flow from Windows and Office and plowing it into cloud, and has done a spectacular job executing on all of that.”

“With double-digit growth for $100-billion company, that’s pretty incredible,” he said.