Former mobile phone titan BlackBerry (BB) hasn’t had a great run of things lately. The latest news initially sent the company down over 6% in premarket trading today, but the stock has recovered since then. It’s not looking good for BlackBerry going forward, especially after the latest developments. There is, however, a potential path to victory for BlackBerry, so I’m going to stay neutral right now and point out both sides of the issue.
BlackBerry’s year in share prices featured ups and downs in the first half, changing to mostly downs in the second. The company saw a marked drop with January’s departure, going from just over $14 to around $11.50. A recovery kicked in, but that started a substantial decline that brought the company to just under $8 a share in mid-May.
An absolutely astonishing recovery kicked in immediately after. By June 2, the company roughly doubled, nearly breaking $16 per share. That didn’t last, and the company just days later retraced most of its gains to settle in around $10 per share. Occasional bursts of optimism hit, driving the company close to the $12 mark. However, ultimately, the trend is still down for now, and the stock sits at around $8.20.
The latest news offers little hope for BlackBerry investors. The company arranged to sell its “non-core patent assets” in a deal valued at $600 million. The assets in question were sold to Catapult IP Innovations Inc., a company founded in Delaware specifically to buy the assets in question. Included in the sale were patents related to mobile devices and wireless networking and messaging tools.
A Two-Path Solution Ahead
On the one hand, I want to be enthusiastic about this deal. An optimist would look at this deal and think, “Great news! BlackBerry’s divesting its less-than-core assets in order to raise cash for a big new move!” After all, you can’t pull off a comeback without some resources behind you. $600 million bucks could buy quite a bit of comeback.
Meanwhile, the pessimist angle is to look at this and realize that that sale might just be the last such sale BlackBerry can conduct. You can only sell your non-core assets once, after all, and BlackBerry just did exactly that. While it will retain a license to some of them, they’re gone. They’re not coming back unless BlackBerry buys them back. With BlackBerry still on the hook for a New York lawsuit, it’s going to have to spend at least some of that $600 million fending off legal troubles.
It’s been clear that BlackBerry has been ceding the mobile field for some time now. In fact, just a couple of weeks ago, we found out that BlackBerry’s Android apps were on the way out as well.
I previously said that there were two sides to the issue, and there is indeed a path to victory for BlackBerry. BlackBerry, you see, is currently a “cybersecurity firm.” The website makes that much clear. So if we look at this as an opportunity for BlackBerry to get rid of its excess intellectual property and put the proceeds of same to work on further developments, that’s good news for investors.
The company is selling at bargain-basement prices right now, so you may be able to buy in almost on the ground floor of a major cybersecurity operation in the making. Given the enhanced need for cybersecurity operations as we move more toward remote work, this could be a masterstroke.
The problem, however, is that BlackBerry desperately needs something to turn it around.
Wall Street’s Take
Turning to Wall Street, BlackBerry has a Moderate Sell consensus rating. That’s based on one Hold and three Sells assigned in the past three months. The average BlackBerry price target of $7.74 implies 5.6% downside potential.
Analyst price targets range from a low of $7.45 per share to a high of $8.50 per share.
Concluding Views
I’m neutral on BlackBerry because there are two paths forward for the company. One, it slips its legal troubles and puts that $600 million to work on the next big cybersecurity killer app. That’s good news and could take the company from its bargain-basement status to a triple-bagger and beyond. Two, it loses big in court and loses a lot of the momentum from its fire sale and barely manages to keep the lights on. That makes this the beginning of the end more than anything.
There is substantial risk in betting on BlackBerry to win here. Investing now is just that: betting. The bet isn’t exactly a big one; 100 shares can be had for about the price of a decent television right now.
So for those feeling optimistic, this could be a huge winner. The odds of that, though, aren’t great, which is why I’m staying neutral on a company that could be in line for a big win, or not.
Download the TipRanks mobile app now
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Read full Disclaimer & Disclosure
