What happened
Shares of BlackBerry (BB -3.14%) soared more than 40% on Monday morning despite no company-specific news. The company is one of the darlings of a Reddit discussion group that has been influencing market moves in recent weeks, and the stock appears to be benefiting from the attention today.
So what
BlackBerry, perhaps best known as the maker of the original must-have smartphone, had mostly fallen off the radar until recently. The company that was once known as Research in Motion has abandoned the handset business but continues to plug away as a maker of software and services focused on security.
Image source: Getty Images.
The company's attempted second act was thrusted into the spotlight in December when it announced a collaboration with Amazon Web Services to develop a platform that will help automakers collect and organize data from vehicle sensors.
The partnership provided a reminder of the potential of BlackBerry's remaining business, and perhaps caused a lot of investors to take a fresh look at the stock. But December's 12% gains are nothing compared to what has happened in January.
The stock is up 182% for the month, including Monday's gains, after BlackBerry became one of the most talked about stocks on the r/WallStreetBets subreddit. We've seen other examples of stocks soaring higher thanks to plugs on WallStreetBets -- GameStop has moved higher apparently due to the group's influence -- and BlackBerry seems to be another beneficiary of the phenomenon.
Now what
I was bullish on BlackBerry heading into 2021, calling the stock the turnaround story of 2020. Three weeks into the year, I don't know what to think.
BlackBerry is building a solid business that I believe could eventually attract the attention of a strategic buyer, but it's hard to justify the stock's current valuation based on the potential of that business. BlackBerry today has a market capitalization of nearly $8 billion and trades at more than 140 times its free cash flow.
There's no way of knowing what a stock will do day-to-day, and I'm not predicting the stock will go up (or down) in the days to come. But given the valuation spike there is no reason, based on the fundamentals, to believe buying in today is a good idea. Long-term investors are best-served watching this current euphoria from the sidelines.
