Is BlackBerry Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does BlackBerry (NASDAQ: BBRY  ) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell BlackBerry's story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at BlackBerry's key statistics:

BBRY Total Return Price Chart

BBRY Total Return Price data by YCharts.

Criteria

3-Year* Change 

Grade

Revenue growth > 30%

(26%)

Fail

Improving profit margin

(78.8%)

Fail

Free cash flow growth > Net income growth

(6.7%) vs. (126.3%)

Pass

Improving EPS

(128.5%)

Fail

Stock growth (+ 15%) < EPS growth

(78.9%) vs. (128.5%)

Fail

Source: YCharts. *Period begins in Q1 2010 (February).

BBRY Return on Equity Chart

BBRY Return on Equity data by YCharts.

Criteria

3-Year* Change

Grade

Improving return on equity

(118.5%)

Fail

Declining debt to equity

No debt

Pass

Source: YCharts. *Period begins in Q1 2010 (February).

How we got here and where we're going
BlackBerry's shortcomings are by now well-known, but its fundamental deterioration is not as complete as many investors may think. Free cash flow has actually held up better than revenue, which is rare, and BlackBerry has long operated debt-free, which gives it a lot of flexibility to fight back against the industry leaders. The big question remains: Can BlackBerry effectively fight back? It's earned only two passing grades this time, and will need a monster performance in 2013 to get back into positive territory.

BlackBerry's latest earnings report proved to be a mixed bag several days ago. Despite the earnings beat recorded for the fourth quarter, shares barely budged. The company also sold a million Z10s, many of which went to first-time buyers (who switched from other operating systems). Cash balances even held up better than expected. So why the mixed bag?

Well, let's start with the obvious: BlackBerry is so far behind smartphone OS market leaders Google (NASDAQ: GOOGL  ) and Apple (NASDAQ: AAPL  ) that its market share barely even registers. At this point, the former Research in Motion has slowed to a crawl, and is losing ground to Microsoft's (NASDAQ: MSFT  ) Windows Phone OS -- but beating Microsoft only lands BlackBerry back in a distant third place. BlackBerry was once the king of "smartphones" before most people used the word to describe the category. Since Apple (and then Google) arose with a new touchscreen mini-computer standard of design, BlackBerry's been struggling to catch up.

The problem with that effort is pursuing a "me, too" strategy in the smartphone market isn't likely to move the needle enough from an investment standpoint. My fellow Fool Adam Levine-Weinberg points out the obvious: Everyone is pretty much doing the same thing. That works well enough for the companies that jumped ahead when that thing was new and exciting, but when you're starting 50 yards behind on the 50-yard dash, you practically need a jet pack to catch up. The Z10 doesn't look like that jet pack. In my humble opinion, it doesn't even look as interesting as the Nokia Lumia line of Windows phones -- and when smartphones become commodities, the pretty commodities are likely to beat the bland ones.

BlackBerry's quarterly shipments have declined every quarter for over a year now. Its latest quarter saw just 6 million smartphones shipped -- yet another dangerous slide. While there's a case to be made that BlackBerry has a low bar to hurdle to look good again, the fact that it continues to miss that bar should give investors serious pause. How can you show momentum when fewer people want your product every month?

Putting the pieces together
Today, BlackBerry has few of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

Keep track of BlackBerry by adding it to your free stock watchlist.


Read/Post Comments (10) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 08, 2013, at 9:51 PM, magnaman1969 wrote:

    Lol..okie dokie!

  • Report this Comment On April 08, 2013, at 11:11 PM, Jjkiam wrote:

    Agreed! when you bother to look at the specs , it is hard to see how the BB10 competes. Notwithstanding all the paid BBRY bloggers desperately trying to distract from this simple reality!

  • Report this Comment On April 09, 2013, at 12:57 AM, TimKnows wrote:

    What does Nokia pay for an article like this? Maybe Apple helps out with the bill a bit too? Apple is dead in 2013. Sad.

  • Report this Comment On April 09, 2013, at 5:50 AM, leslyharrys wrote:

    Incredible how people and analyst are underestimating Window Phone 8. Everybody who takes a WIndows Phone 8, will never return. Because the Windows Phone 8 software is so intuitive and easy and handy to use, much more than even an Iphone wich is know to have a good userinterface. Windows Phone 8 beats them all.

    And with everybody with WP 8 and never changing back to iOS or ANdroid there will be only growth an more growth!

  • Report this Comment On April 09, 2013, at 6:15 AM, FoolishGoph wrote:

    @info that help. BB10 seems pretty complete to me. Most end users have no idea about technology as you do and they do not care. BB10 appears slick, fast, and easy to use. This sells phones and the fact is many BB10 users are extremely happy. BBRY and BB10 continue to improve and you cannot stop it from competing with other platforms. Find another hobby.

  • Report this Comment On April 09, 2013, at 8:25 AM, RandomMeaning wrote:

    "Most end users have no idea about technology as you do and they do not care. BB10 appears slick, fast, and easy to use."

    To loyal Blackberry users who have refused to consider other devices, that is certainly true. BB10 is a huge improvement over BB7 (which was really BB6.x). By the way, what happened to BB8 & BB9? Well, that's not really important. It's all just marketing anyways.

    In isolation, that would be fine. But the world has seen iPhones, Android, and Windows devices improve by leaps and bounds on a yearly basis. Strange how some people always want to pretend that their competitors have some how stopped developing their products when obviously they are working hard to make improvements. And succeeding.

    BlackBerry's best prospects are as a profitable niche player that specializes in corporate devices with keypads. Sure, still make buttonless devices for variety and be available for consumers too. But stay focused.

    There are a few "fans" posting prolifically under multiple IDs who demand nothing less than total domination for the BlackBerry but they really aren't helping by setting up unrealistic goals and expectations. In fact, they are harming BlackBerry's brand by creating negative perceptions. Just because they want to pretend that all their competitors have magically died by posting words in comments doesn't make it true.

  • Report this Comment On April 09, 2013, at 8:33 AM, RandomMeaning wrote:

    "Incredible how people and analyst are underestimating Window Phone 8. Everybody who takes a WIndows Phone 8, will never return."

    Actually, reports indicate that the return rate of Windows 8 devices are quite high, including the phones but most particularly the Surface devices. Not trying to be mean, that's simply what's happening. Nokia's Asha line is doing pretty well though. That's where the vast majority of Nokia's growth has come from.

    Also, the post reads a lot like the comments from the BlackBerry "fans" service.

    Interesting.

  • Report this Comment On April 09, 2013, at 8:42 AM, RandomMeaning wrote:

    "The company also sold a million Z10s, many of which went to first-time buyers (who switched from other operating systems)."

    And finally, it was a million Z10s shipped. Heins himself said that about a third of those remained unsold. But it was a successful marketing ploy. A million sounds better than 666,666+ sold to end users.

    Also, in regards to "first time buyers", it's more accurate to say "returning buyers". Considering the huge loss in market share over recent years, of course there were BlackBerry users who went to other devices and are now trying out the Z10. Most often as a second device. This is not unusual, particularly in the business world.

  • Report this Comment On April 09, 2013, at 8:51 AM, etgh wrote:

    Wow.....how the vendor syncophants line up in these blogs.

    Funny to watch them spin and spam for their particular obsession.

    .

  • Report this Comment On April 09, 2013, at 9:04 PM, digitally404 wrote:

    In due time, one by one, people will come back to Blackberry.

    @Jjkiam : The specs don't matter here. The Z10 is a 100% vertically integrated phone, meaning the software runs optimally over the hardware.

    The S4 is disconnected, and the Android platform is inefficient, which is the reason Samsung markets specs as being important... They need 4 cores to run Android! It's embarassing.

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