Shares of BlackBerry (TSX: BB)(NYSE: BB) have taken investors on quite the wild ride of late.
Indeed, this ride has been fuelled by what turned out to be initially a strong growth thesis. In recent weeks, it appears the only catalyst for this stock that matters is the mania behind the Reddit “wallstreetbets” (WSB) retail investor group. Those following the saga that has unfolded may already be aware of what’s going on. For those less familiar, I’ll dive into what’s happening.
Additionally, I’m going to highlight a bearish scenario in which BlackBerry shares are simply unable to keep up with this newfound hype.
The rise of the retail investor
The absolutely parabolic spike we saw in BlackBerry as well as GameStop, AMC, and other U.S.-listed stocks has taken the market by surprise. These moves followed the massive influx of retail investors to the Reddit group “wallstreetbets.” This group aimed their vitriol at Wall Street and various hedge funds that engaged in short-selling campaigns. They viewed the actions of these market participants as manipulative in nature. Accordingly, the goal? Squeeze these short positions, and force them to cover and incur massive losses in the process.
Short squeezes are extremely rare — and BlackBerry was a difficult target
As previously mentioned, this started out with a strong fundamental investment thesis. Of course, as with any hyped up bubble-like investment opportunity, the fact that the masses piled into one stock all at once caused a parabolic spike in just a few days.
The thesis was that the retail investor (that is, the small-time individual investor) could bring Wall Street to its knees by forcing short squeezes on heavily shorted stocks like BlackBerry. I’ve highlighted what a short squeeze is in this linked piece – I’d highly recommend that readers give it a gander.
The thing is, short squeezes are extremely (and I mean extremely) rare! While many have tried, few have succeeded. The GameStop squeeze was a true squeeze. The squeeze has already happened, and I think this selling is indicative the market is reacting to the fact that these stocks will eventually plunge back to earth.
Bottom line
At the time of writing, shares of BlackBerry are down almost 20% today. This follows a series of volatile days of late, and adds momentum to the sell-off we’re seeing in this stock. Since the peak of this mania last week, shares are down nearly 60%!
There is indeed the potential BlackBerry stock could drop back down to the $6-$8 level, where it was trading before it caught fire with the WSB group. This would imply a further 30%-50% decline from current levels, at the time of writing.
Investors need to be extremely careful with speculative plays like this. Investing what one can afford to lose is the only way to speculate. It’s pure gambling, and akin to going to the casino (you’ll lose more than you’ll win in the long-run). The Foolish way – pick up great companies at cheap prices and hold long-term. BlackBerry is what I believe is an excellent long-term holding. I’d wait a week or two to see where shares settle and recommend investors consider picking this stock up from the garbage heap.
When all is said and done, BlackBerry’s stock has further room to drop due to the incredible momentum and volatility in this stock.
