Blackberry Stock Down 4% Today – Time to Buy BB Stock?
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The price of Blackberry stock today is down 4% in early stock trading activity at $7.7 per share after the company announced that it will be selling a huge chunk of its non-core patent portfolio.
In a press release published this morning, the company stated that a company called Catapult IP Innovations Inc. agreed to purchase the portfolio for $600 million.
The patents were described as “legacy” meaning that they are mostly related to Blackberry’s old mobile business.
A total of $450 million will be paid in cash while the remaining $150 million will be financed in the form of a promissory note to be paid in five equal annual installments of $30 million commencing on the third year after the deal’s closing date.
Regulatory conditions must be satisfied and the company expects that this process will take up to 7 months.
What could come next for this former meme stock after this announcement? In this article, I’ll be assessing the price action and fundamentals of Blackberry stock to outline plausible scenarios for the future.
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Blackberry Stock – Technical Analysis
The price of Blackberry stock has been steadily declining since the short-squeezing frenzy that took place in the first couple of months of 2021 as the influence of retail traders on the price action has been diminishing.
In the past few weeks, a steady increase in US Treasury yields has contributed to pushing the valuation of risky assets lower as investors have adopted a risk-off attitude in light of potential changes to the Federal Reserve’s monetary policy.
Riskier equities, primarily those tied to money-losing or fundamentally weak companies, have suffered the most and this is the case of Blackberry as the meme stock accumulates an 18% loss since the year started.
The stock is currently trading 25% below its 200-day simple moving average and a falling wedge formation remains in play. Meanwhile, momentum indicators are heavily depressed with the Relative Strength Index (RSI) standing near oversold levels while the MACD remains on negative territory and below the signal line.
Moving forward, a move above the $10 level could signal a short-term recovery in the price of BB stock while a break below the falling wedge would invalidate the pattern and could prompt a decline toward the next horizontal support found at $6.3 per for a total downside risk of around 18%.
Blackberry Stock – Fundamental Analysis
A $450 million influx would push the company’s cash and equivalents balance to around $1.2 billion based on Blackberry’s latest quarterly report.
By the end of that period, the firm’s intangible assets were valued at $662 million which means that the company will probably report a non-recurring profit on the sale of these patents.
Blackberry reported positive GAAP operating results in the third quarter of 2021. However, the reason for this was a positive adjustment in the fair value of some financial instruments.
Blackberry has managed to break even or better in the past few years in terms of its cash-flow generation capacity while it seems that the management is getting ready to make some investments by using the proceeds from this sale and the firm’s current reserves.
The market capitalization of Blackberry stands at $4.4 billion – around 6 times its forecasted sales for 2022.
According to the latest quarterly filing, the firm has to pay around $456 million in leases and debt obligations in the next one to three years. The sale of these assets could help Blackberry in making these payments on time as long as it does not deploy some of the funds in acquiring assets as part of its ongoing turnaround toward becoming a leading cybersecurity firm.
Overall, the current valuation assigned to Blackberry still seems excessive as it assigns an elevated value to the firm’s technologies and intellectual property. Thus far, those assets have not produced positive results for the firm.
With this in mind, if market conditions continue to deteriorate, the downside risk for Blackberry stock remains elevated and investors should stay away from this firm for as long as the business model remains this weak.
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