In this article, let's take a look at BlackBerry Limited (BBRY, Financial), a $5.24 billion market cap company, which is engaged in the design, manufacture and marketing of wireless solutions for the worldwide mobile communications market.
Strong competition
Apple Inc. (AAPL, Financial) launched constantly new versions of its “iPhone” that gained market share from Blackberry, and we believe it is difficult for the company to recover it.
We see its business model and its financial health in a delicate situation. Reaching the break-even point in the long term would be quite satisfactory. Market share is very low compared to Android´s and Apple´s market share.
In the hardware segment, the market-share losses are huge, as consumers run to others ecosystems (like Android). In software, it is difficult that the firm would be able to monetize its BBM and BES software.
Valuable assets
Through the development of integrated hardware, software and services that support multiple wireless network standards, BlackBerry provides platforms and solutions for seamless access to information, including email, voice, instant messaging, short message service, Internet and intranet-based applications and browsing.
The company holds some valuable assets, such as BlackBerry Messenger (BBM), enterprise software and QNX, which continue to be positive for the firm.
Gains from the first two assets remains questionable; the QNX could be a leading software platform, but today it doesn´t collect much money from its revenues.
Further, Apple and Android are focusing on the car software space, and this constitutes a threat for BlackBerry.
Revenues, margins and profitability
Looking at profitability, revenue declined by 68.55% and led a strong decline in earnings per share in the most recent quarter compared to the same quarter a year ago (-$0.37 vs -$0.16). During the past fiscal year, the company reported poor results of -$11.17 versus -$1.20 in the prior year.
Finally, let´s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.
| Ticker | Company | ROE (%) |
| BBRY | BlackBerry | -162.01 |
| AAPL | Apple Inc. | 29.98 |
| GOOG | Google Inc. | 14.8 |
| NOK | Nokia Oyj | -9.51 |
| Ă‚ | Industry Median | 5.00 |
The company has a tremendous negative ROE which is lower than its peers and the industry median. In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. So for investors looking those levels or more, Apple and Google (GOOG, Financial) could be the better options. It is very important to understand this metric before investing and it is important to look at the trend in ROE over time.
Relative Valuation
In terms of valuation, the stock sells at a price-to-book ratio of 1.42x which indicates a discount versus the industry average of 2.22x while the price-to-sales ratio of 1.79x is above the industry average of 1.47x.
As we can see in the next chart, the stock price has an downward trend in the five-year period. If you had invested $10,000 five years ago, today you could have $1,225, which is really worrying for investors.
Final comment
BlackBerry is a highly risky and volatile investment. In the future, it would be very difficult to re-emerge as a software provider. So, in this opportunity, I would recommend to stay away from BlackBerry.
Hedge fund gurus like Jeremy Grantham (Trades, Portfolio) and Charles Brandes (Trades, Portfolio) reduced this stock in the second quarter of 2014.
Disclosure: Omar Venerio holds no position in any stocks mentioned
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