BlackBerry Ltd (NYSE: BB) is screaming for the top in the market this morning, following up on the strong gains we’ve seen out of the stock as of late. However, if you’re digging for press releases or SEC filings, be prepared to be disappointed. The company hasn’t issued any news.
So, what’s the deal?
The recent movement for the top in BB stock seems to be the result of a short squeeze. Here’s what’s going on:
Skip to What You Want to Read
- BlackBerry Squeezes the Shorts
- Patent Sales Keep the Squeeze Alive
- What Analysts Think About BB Stock
- Risks to Consider Before Buying BB Stock
- Final Thoughts
BlackBerry Squeezes the Shorts
BlackBerry, once the darling of the smartphone space, hasn’t had the best of times in the market over the past few years. The tech company seems to have lost direction in the smartphone space and focused on other areas of computers and technology.
Over the years, this has led to a heavy amount of short interest, which seems to be being squeezed out of the stock as we speak. No, today isn’t the only day that BB stock has been running for the top and a quick search on message boards shows that investors don’t think it’s coming to an end anytime soon.
So, what is a short squeeze?
It’s simple. Short sellers borrow shares at current prices and sell them into the open market, hoping for declines. When those declines happen, the short seller repurchases the shares to return them to the original owner, making the difference between the original selling price and the buying price as a profit.
Even if prices go up, the short seller must return the shares. So, when the share price climbs, short sellers race to cover, or buy back shares, before prices get too high and losses mount. This generally leads to a strong increase in volume and price in what is known as the short squeeze.
That’s exactly what’s been happening with BB stock as of late.
Patent Sales Keep the Squeeze Alive
BlackBerry is far from short on patents. In fact, there are said to be around 38,000 of them in the company’s IP portfolio. However, that number was reduced by 90 yesterday when the company announced the sale of these patents to Huawei.
All patents sold under the deal relate to the company’s smartphone technology. In fact, the company described these patents as patents that cover “significant advancements” in smartphone technology.
This is exciting for investors for two key reasons:
- Funding. When patents are sold, they generally aren’t sold cheap. As a result, the sale of the patents will help BB pad its balance sheet, making it more attractive to prospective investors.
- Focus. Perhaps more importantly, BlackBerry has struggled in the smartphone space for some time now. While the company’s other segments are doing well, many wondered if the company would cut the bleeding in the smartphone segment and focus on more profitable ventures. The sale of these patents suggests that this is exactly what’s taking place.
What Analysts Think About BB Stock
According to TipRanks, analysts have a bit of a “meh” view when it comes to BB stock. In fact, there are three analysts currently covering the stock, all three of which rate it a hold.
Price targets range from $8.50 on the high side to $7.50 on the low side, with a consensus price target of $8, which represents a potential double-digit downside.
Risks to Consider Before Buying BB Stock
If you’re going to invest, you’re going to have to be willing to accept risk. That’s the case with any investment you make, even cash in a savings account. When it comes to an investment in BB stock, some of the most significant risks to consider include:
- Lack of Profitability. BlackBerry drives quite a bit of revenue, but that revenue hasn’t been enough to push it to profitability. If the company can’t make it to profitability before funds on its balance sheet run dry, it may look to sell newly issued shares as a way to raise funds, diluting value for existing shareholders and leading to declines. It is worth mentioning that analyst forecast suggest the company will reach profitability in Q2 or Q3 of this year.
- Behind the Curve. BB stock is concerning based on its past performance in terms of innovation. In the world of tech, innovation is everything, and early on, the company did well, taking the smartphone industry by storm. However, as the industry grew, we quickly found that the company simply couldn’t keep up with competitors. Should the company stay behind the curve in terms of innovation, profitability will be nearly impossible to achieve.
Ultimately, I have mixed opinions of BB stock. At first glance, things seem pretty good. The company is changing its model to focus on more profitable ventures and selling IP that it won’t need to do so.
However, any time I think about investing in the stock, I’m haunted by the company’s history. Sure, BlackBerry was once the king of the smartphone space. However, that didn’t last long. If it can’t get ahead of the curve in terms of innovation, BB stock will be destined to more of what we saw over the past few years, disappointing results.
Nonetheless, in the spirit of being a glass half full kind of person, I’m hoping for the best for all involved in the stock.