BB Stock’s Dismal Earnings: I’ll Stay Away

BlackBerry Inc (TSX:BB) stock crashed after earnings. Here’s why I’m still staying away.

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BlackBerry (TSX:BB) stock recently released its earnings for the fiscal quarter ended March 31. The results missed analyst estimates, showing a dramatic decline in revenue and an equally dramatic increase in losses. The stock rallied immediately after earnings, but is now down 0.9% from the post-earnings peak.

As a result of the recent sell-off, BB stock is now much cheaper than it was at the start of the year. However, it isn’t necessarily “cheap” in fundamental terms, as it does not have any profit against which to measure the share price. For this reason, I am staying away from BB stock.

Earnings recap

Blackberry Inc delivered a performance about in line with analyst expectations but below shareholders’ apparent wishes in the fiscal first quarter. In the quarter, the company delivered:

  • $144 million in revenue, down 62%.
  • $96 million in gross profit, down 46%.
  • $-42 million in net income, worsened by $31 million.
  • $-0.03 in reported diluted earnings per share (EPS). “Reported” means calculated in accordance with generally accepted accounting principles (GAAP).
  • $-0.07 in adjusted diluted earnings per share, worsened by $0.05. “Adjusted” means calculated how the company sees fit.

These numbers are about what analysts expected from BB stock. Revenue and GAAP EPS, in particular, were right on the money. Nevertheless, BB stock has fallen 0.9% since the initial post-earnings rally.

It appears that shareholders are beginning to question the price they paid for BB stock. Blackberry trades at 2.3 times sales, which is higher than the TSX index’s 1.9 multiple. However, BB’s sales are going down while the average TSX company’s sales are going up. Factoring in growth, BB stock appears to be more expensive than its TSX peers.

Why Blackberry is underperforming

The reason why BlackBerry stock is underperforming is because its business is declining on a long-term basis. The company’s sales have been steadily declining since 2015. Earnings have been negative for five years plus one quarter. Its efforts in EV software have not been sufficient to turn around the business’s bottom-line performance. Put simply, BlackBerry is doing badly as a business, and its stock is following suit.

Could BlackBerry turn things around?

One reason why people think BlackBerry could become a turnaround story is because it has a very distinguished CEO, who is pushing EV software. This is an intriguing industry niche, EVs being as popular as they are. However, it does not appear to be driving any profits. It’s been over five years since John Chen pivoted to software and it hasn’t been able to stop BlackBerry’s persistent bleeding. I suppose it’s possible that the real payoff is well into the future and requires patience, but investors would probably have an easier time just looking elsewhere.

BB stock: Foolish takeaway

Investors have been betting on BlackBerry for a long time now. For the most part, they have fared poorly. I see little evidence that things will turn around any time soon. The company’s pivot to software has led to a lot of installs, but not much in the way of revenue or profit. It looks like BB is struggling to monetize its most promising technologies. I wouldn’t bother betting on a potential turnaround here. There are plenty of other investment opportunities that are not such “long shots” as BB stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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