Even Now, BlackBerry's Stock Still Isn't Cheap Enough


Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

For only the third day this month, U.S. stocks failed to advance, with the S&P 500 and the Dow Jones Industrial Average falling 0.7% and 1.2%, respectively. The "liquidity bump" that stocks got after the Fed's Wednesday decision not to "taper" is over (for now); perhaps investors are focusing on the next "big picture" agenda item: Political squabbles over the federal budget and debt ceiling,

The CBOE Volatility Index , for its part, has been behaving uncharacteristically over the past several days, rising with stocks, and vice-versa. That pattern continued today, as it fell 0.3%, to close at 13.12. The VIX, Wall Street's "fear index," is calculated from S&P 500 option prices, and reflects investor expectations for stock market volatility over the coming 30 days.

This Berry is bleeding fast
Twice over the course of the last six weeks, I warned investors away from BlackBerry shares. On Sep. 4, I wrote:

BlackBerry has been destroying shareholder wealth at a furious pace: The stock has lost nine-tenths of its value during [the past five years]. At that rate, no wonder the company is eager to sell itself. Barring a sale, there is little reason not to extrapolate the trend in that graph until shareholders are left with nothing. The sooner BlackBerry is sold, the more value shareholders will be able to salvage. That said, just because BlackBerry wants to do a deal doesn't mean anyone else wants to do it with them.

Some readers lambasted me in the comments section of the article, pointing to well-chosen short-term periods over which the stock had performed well. They were missing the forest for the trees, but that is becoming harder and harder to do, particularly in light of today's conclusive profit warning. In fact, "profit warning" is a misnomer, as the Canadian smartphone maker said it suffered an operating loss that could reach nearly $1 billion in its fiscal second quarter, which ended in August (the range they provided is $950 million to $995 million.)

The largest contributor to that loss is an expected charge on BlackBerry's Z10 phones of $930 million to $960 million. The company launched the Z10 in March in a last-gasp attempt to recapture market share in the smartphone market from the likes of Apple and Samsung. That attempt has failed, and BlackBerry is conceding defeat with its decision to abandon the consumer market and focus, instead, on business users. That move will force it to cut 40% of its workforce.

I think BlackBerry's management understands the severity of the company's predicament, and the market is starting to take the measure of the problem, as today's chart makes clear (the orange line represents the Nasdaq Composite Index):

BBRY Chart
BBRY Chart

BBRY data by YCharts

After that rout, are BlackBerry shares finally in deep value territory and worth a punt? I don't think so. Catering to the business user is a logical strategy at this stage (although a rapid sale really ought to be the preferred option at this stage), and BlackBerry may able to defend a niche franchise in this market.

However, it's hard to say how large or how stable that target market is. Indeed, it stands to reason that competition in that segment will only ratchet up from here. Workers want to use just one smartphone, not one for business and one for everything else; companies understand this, and IT departments will work to accommodate their workers on that front. If Blackberry can't convince consumers to buy their phones, there's little reason to think that the number of business users who want to use them won't shrink -- and quickly. Blackberry is a casualty of the "mobile wars," and if it doesn't find an acquirer soon, it could well end up a fatality.

Who will win the "mobile wars?"
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The article Even Now, BlackBerry's Stock Still Isn't Cheap Enough originally appeared on Fool.com.

Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on Twitter @longrunreturns. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published