Analyst Sounds the Valuation Alarm Bell on BlackBerry’s Hot Stock

The stock market has borne witness to many wild rides over the past year, but could 2021 take the biscuit? BlackBerry (BB) investors would probably say “yes.”

BlackBerry shares are up 185% since the turn of the year, as what appears to be the latest with a large short position in the throes of hyper-speculative buying.

The once leading smartphone maker’s glory days may belong to history, but in the meantime, the company has transitioned to one focused on software development with a strong emphasis on security.

The company has underdelivered for years, but it has made some good progress recently. Among the highlights is a collaboration with Amazon Web Services (AWS) on BlackBerry’s intelligent vehicle data platform, IVY, the sale of 90 patents to Huawei, and the resolution of a patent dispute with Facebook. Most recently, the company announced an expanded partnership with Baidu, which will see the Chinese tech giant’s high-definition maps integrated into Blackberry’s QNX Neutrino Real-Time Operating System.

But none of the above justify the scale of the recent surge, according to RBC analyst Paul Treiber.

The 5-star analyst has downgraded his rating from Sector Perform (i.e. Hold) to Underperform (i.e. Sell). Treiber’s $7.5 price target remains intact, suggesting a sharp 60% decline for the shares. (To watch Treiber’s track record, click here)

Treiber lists several reasons for the downgrade. For one, the company’s valuation has irrationally soared to multi-year highs. “BlackBerry is trading 26% above peers (7.5x), vs. trading at a 32% average discount over the last 5 years, given lower growth,” Treiber said.

Second of all, there has been little change to the fundamentals, as BlackBerry’s latest Q3F21 results have shown.

“BlackBerry’s core UEM/Cylance business has not materially changed; UEM/Cylance showed no material organic growth (similar Q2), dollar net revenue retention was 90% (vs. 92% Q2), and customer churn was 1% (vs. 3% Q2),” the analyst further said.

Lastly, while the latest developments are positive, the “probability of an unannounced IP licensing gain appears low.”

The view from the rest of the Street is hardly any rosier. Based on 1 Sell and 2 Holds, BB has a Moderate Sell consensus rating. At $8, the average price target is only slightly higher than Treiber’s and suggests ~58% downside over the next 12 months. (See BlackBerry stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.