BB Stock: Is It an Investment, Trade, or Lottery Ticket?

BB stock is surging on short-squeeze hype again, but that doesn't mean everyone should rush out and buy shares. We're looking at the investment thesis, the trade strategy, and who should actually own this stock right now.

Shares of former cell phone manufacturer, now cybersecurity firm Blackberry Ltd. (NYSE: BB) have been swept up as a "meme stock" by the good folks on Reddit once gain. This happened back in December, and the stock was lifted up as high as $28.77 after trading below $5 for most of 2020.

The diamond hands did not prevail, however, and the stock fell back below $10 a share.

The WallStreetBets crowd has rediscovered the tech stock, and last week they pushed the stock back over $16 a share.

The madness began again early this week with Blackberry shares up over 13% on Monday.

After the success of trades around GameStop Corp. (NYSE: GME) and AMC Entertainment Holdings Inc. (NYSE: AMC), is BlackBerry stock the next meme to pop?

Here's what to look for before buying this lottery ticket...

Is BB Stock a Good Investment?

There are two ways to look at this stock: as an investor or as a trader.

If you are an investor, you're better off not buying.

By all accounts, Blackberry sells very good cybersecurity products to large enterprises and governments around the world. However, that is an intensely competitive market, and Blackberry has not been growing its revenue or earnings for several years now.

The same is true for the connected car and Internet of things software products.

When your competition is Samsung, Microsoft Corp. (NASDAQ: MSFT), Alphabet Inc. (NASDAQ: GOOGL), and Cisco Systems Inc. (NASDAQ: CSCO), you are already way behind.

You would have to execute perfectly, and Blackberry has not been able to do that.

It is not profitable, and if it's lucky, Wall Street thinks it might squeak out a profit of $0.06 a share in 2023.

Let's look at what the smart money did when the stock shot higher in December.

In aggregate, institutions decreased their holdings in the stock by 13% - hedge funds decreased theirs by a whopping 45%.

Insiders rushed to sell stock as the short squeeze pushed the stock price higher. Selling began in late December and ran into January. The CMO and CFO were among the largest sellers. Remember, these people know the company better than anyone on social media.

We saw more selling as late as April, when the stock was back below $10.

This is a struggling company with no institutional support. Insiders are exiting, which tells me that they do not see business getting any better and are using the speculative push from Reddit to cash in their chips.

That does not sound like a stock I would want to invest in with my serious money.

How to Trade BB Stock

So, it's not a long-term investment at these prices. What about as a quick trade?

Even if you are a momentum trader, the answer is still probably not.

The best momentum trades usually are a reflection of solid fundamentals and prospects at a company. Momentum is usually driven by the fundamentals of the company and the strength of the story. When you look at big momentum winners, you usually see strong revenue growth, expanding margins, and positive earnings surprises.

The price momentum is usually a result of large institutions buying the stock relentlessly.

None of that is true with Blackberry.

If you are a bit of a speculator that likes to gamble on high-risk, potentially high-reward bets, should you throw some of your play money at shares of Blackberry?

Why not?

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There is not really a short squeeze at Blackberry any more. Short interest is less than 10% right now, so it's nowhere near the levels of fellow meme stocks like GameStop and AMC.

However, WallStreetBets has still been able to drive some fast, large gains over the last year.

There are millions of people reading the r/WSB board on Reddit these days. Literal fortunes were made in GameStop and AMC.

Should a significant percentage of them decide to take a flyer on Blackberry again, we could see a sharp move higher in the stock.

The trick is knowing when to bail out of the trade before it tumbles down again.

Our rational brains are telling us that companies with falling revenue, no profits, and poor prospects are not worth more than 10 times sales.

That's true. It is not worth the current valuation.

We know that stocks that have options with triple-digit implied volatilities almost always crash back to earth at some point.

That's true, and we definitely would not suggest buying options on BlackBerry.

In fact, given pricing levels right now, we would be tempted to sell covered calls and rake in a premium.

If you are going to play, keep your bets small and your stop tight.

Treat it like a bet not an investment or even a trade.

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