Blackberry: BUY or ..?

Blackberry, a few months ago, was heralded by Wall Street as the company that was on it’s death bed. Investors and consumers shared this attitude: Blackberry was too grave to save.

Investors, in late November of last year, were investing in the stock solely on the prospect of a sale. Blackberry then had a market cap of about $4.7 billion. However, its assets combined offered more value on the sheet than the stock price dictated.

However, Blackberry on Friday, June 11, closed at $11.51.  That is the highest Blackberry’s stock has been since November 4, 2013 when John Chen was appointed as interim CEO and the executive chairman of the Board of Directors.

So what happened? How did BBRY bounce back from the low $5’s to the upper 11’s?

John Chen

Investors are finally buying into Chen’s turnaround plan and have more optimistic view for the company. After taking charge in November, Blackberry has laid off scores of individuals, sold off numerous real estate assets such as R&D centers, and basically stabilized the company financially.

Along with that, Blackberry struck a deal with Amazon Appstore. As part of the deal, the Amazon Appstore app will be pre installed on all Blackberry Z10’s. Furthermore, due to existing functionality and software architecture, older phones of Blackberry will be able to make use of this functionality as well. As a result, Blackberry users will have access to an additional 240,000 application in addition to the 130,000 that Blackberry was already offering.

Furthermore, at Mobile World Congress in Barcelona, Blackberry introduced the Blackberry Z3. The Z3 is an entry level smartphone aimed at the markets of developing nations, and will effectively compete with OEM manufacturers who offer basic smartphones at a, rather, cheap price. The phone boasts a 5″ screen, 8 GB of internal memory, 1.2 GB of RAM, and a 2650 mAh battery. However, it is not the slew of impressive specifications that will earn Blackberry its sales in these countries. It is the name: Blackberry. Blackberry in many of these countries is regarded as a luxury brand such as Apple, and was, back in the past, regarded as a symbol of wealth.  Coupled with the brand value, the handset is also competitive in its specifications and features, which as a result makes the device quite attractive.

BRY

Finally, Blackberry surprised investors by posting a small profit. On June 19, Blackberry reported a $23 million profit for its first quarter of 2014. After string of loses in previous quarters ($423 million a quarter ago, and $84 million 2 quarters ago), Blackberry completely shocked investors with this.

So, should we all buy it? Not yet.

Even though these are all positive signs, the Waterloo based handset maker is still facing struggles. Furthermore, some analysis also reveal that the profit was due to the numerous sales Blackberry made that drastically cut down operating expenses. In fact, according to Blackberry’s quarterly filings, they reduced their operating expenses from 57%, a year ago, to 13%.

However, these signs, bluntly put, show that John Chen is well aware of what he is doing. His efforts and plans concerning the turnaround are not futile, and are actually helping the company.

So when should we buy the stock? I would recommend patience; keep an eye on the stock, and for consistent improvements overall.

In fact, the general consensus among the analysts is that the stock is OVERWEIGHT. This chart will display the recommendations of analysts:

marketwatch

 

I have to agree with 20 of the analysts, BBRY is as of right now a HOLD. Given the issues the company is still facing, it is rather early to conclude whether BBRY’s stock has potential or if the latest trend is just a fad. Therefore, with that, I have a HOLD rating on Blackberry with a $14.10 price target.

Disclosure- I do not plan to initiate any options on the stock in the next 72 hours, and the views presented in the article solely express my views.

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