Billionaire investor Prem Watsa (Trades, Portfolio), leader of Fairfax Financial Holdings, revealed he upped his stake in BlackBerry Ltd. (BB, Financial) by 117.99% earlier this week.
Known as "Canada's Warren Buffett (Trades, Portfolio)," the guru's investment strategy mimics the practices of the Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) CEO in that his insurance conglomerate purchases entire companies as well as invests its float in publicly traded companies.
According to GuruFocus Real-Time Picks, a Premium feature, Watsa invested in 55.13 million shares of the Canadian software company on Sept. 1, impacting the equity portfolio by 16.19%. The stock traded for an average price of $5.58 per share on the day of the transaction.
The investor now holds 101.8 million shares total, which represent 29.9% of the equity portfolio. GuruFocus estimates he has lost 27.11% on the investment so far.
The enterprise software company, which was once known for its smartphones, now primarily focuses on cybersecurity, communications software and internet of things applications. Sporting a $3.01 billion market cap, shares were trading around $5.32 on Thursday with a price-book ratio of 89.91 and a price-sales ratio of 3.18.
The median price-sales chart shows the stock is trading above its historical average, suggesting it is overvalued.
In June, the company reported its financials for the first quarter of fiscal 2021. It posted adjusted earnings of 2 cents per share on $206 million in revenue.
In a statement, Executive Chairman and CEO John Chen said the BlackBerry QNX software was "impacted by macro headwinds in the auto and other embedded sectors" during the quarter, but was beginning to recover.
"On the enterprise front, we saw good demand from customers who recognized the necessity for BlackBerry's security, business continuity, and productivity solutions in an increasingly remote working environment," he added. "BlackBerry is capitalizing on the secular trends of securing and connecting endpoints."
In his 2019 annual letter to shareholders, Watsa said he will continue to support Chen and BlackBerry as they work "diligently" toward becoming a growth company again.
"As I said last year, with the Cylance acquisition, John is working to become the most trusted AI-cybersecurity company," he added. "Still a work in progress!"
GuruFocus rated BlackBerry's financial strength 5 out of 10. In addition to its debt ratios underperforming verses competitors as well as company history, the Altman Z-Score of 0.51 warns it could be in danger of going bankrupt. The return on invested capital is also surpassed by the weighted average cost of capital, indicating that the company has not profitably employed the capital it has received from investors and lenders.
The company's profitability fared worse, scoring a 2 out of 10 rating on the back of a declining operating margin and negative returns that underperform a majority of industry peers. BlackBerry also has a moderate Piotroski F-Score of 4, which indicates business conditions are stable. The predictability rank of one out of five stars, however, is on watch as a result of declining revenue per share over the past five years.
Watsa is by far the company's largest guru shareholder with an 18.31% stake. Other top guru investors include PRIMECAP Management (Trades, Portfolio), Kahn Brothers (Trades, Portfolio), Michael Price (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies, Francis Chou (Trades, Portfolio), Pioneer Investments (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).
Portfolio composition and performance
Over half of the guru's $2.03 billion equity portfolio, which consisted of 59 stocks as of the three-month period that ended June 30, was invested in the financial services sector, followed by smaller positions in the technology (18.02%) and real estate (12.85%) spaces.
Other tech companies the investor has positions in are Micron Technology Inc. (MU, Financial), Fitbit Inc. (FIT, Financial) Taiwan Semiconductor Manufacturing Co. Ltd. (TSM, Financial), Kulicke & Soffa Industries Inc. (KLIC, Financial), FLIR Systems Inc. (FLIR, Financial), Cirrus Logic Inc. (CRUS, Financial) and iRobot Corp. (IRBT, Financial).
According to GuruFocus data, Watsa's firm returned 14.8% in 2019, underperforming the S&P 500's 31.48% return.
Disclosure: No positions.
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