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Why Shares of BlackBerry Gained 11.7% in May

By James Brumley - Jun 3, 2021 at 4:23PM

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The Canadian-based technology name rallied for the least reliable of reasons.

What happened

Shares of mobility-technology company BlackBerry Limited (BB 2.22%) rallied 11.7% in May, according to data provided by S&P Global Market Intelligence. A revival of interest in so-called "meme stocks" spurred buying that wasn't backed up by any new bullish developments for the company.

So what

Although the bulk of meme stock mania thus far has put the spotlight on AMC Entertainment Holdings -- and to a lesser degree, Bed Bath & Beyond -- BlackBerry has been swept up in the same movement. Shares quadrupled in value during the latter half of this past January after small retail traders organized themselves in an effort to spark short squeezes from certain stocks that had been heavily shorted by hedge funds.

Businessman plotting a rising, digital stock chart.

Image source: Getty Images.

Short-selling is the practice of selling a stock that isn't yet owned, with the intent of buying it later at (hopefully) a lower price to close out the trade. A short squeeze is panic-based buying of shorted shares to prevent any further losses once these stocks start logging sizable gains. Traders only need to start such a rally; short-sellers' capitulatory buying will accelerate it.

Given their technical nature, short squeezes are of course usually short-lived rallies that often end with similarly sized pullbacks. That was certainly the case with BlackBerry's January rally. By late February most of its 300% gain had been unwound. Last month's lows were in line with the stock's December prices.

Now what

The bigger institutional traders betting against BlackBerry shares have legitimate concerns. This fiscal year's expected revenue growth of 15% is mostly a reclamation of last year's top-line contraction of 10%, and this year's projected bottom line of $0.06 per share is still only a third of the company's pre-pandemic full-year per-share profit of $0.18. Although the company has been out of the smartphone business since 2017 to better focus on mobility software and IP licensing, revenue as well as earnings were stagnating at unprofitable levels even before the pandemic took hold. Despite the lowered bar, last quarter's top line still fell short of expectations, serving as a microcosm for the new and not-so-improved-yet company's results.

That's not to suggest BlackBerry is beyond salvaging. Interest in its QNX connected automobile technology is growing, with Volvo being the last manufacturer to select the platform for certain vehicles. IBM is now promoting BlackBerry's Spark mobility security solution in Canada.

Until revenue from these developments -- rather than planned short squeezes -- starts to consistently push shares higher though, this isn't a name investors can count on.

James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends BlackBerry. The Motley Fool has a disclosure policy.

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Stocks Mentioned

BlackBerry Stock Quote
BlackBerry
BB
$6.90 (2.22%) $0.15
International Business Machines Corporation Stock Quote
International Business Machines Corporation
IBM
$132.61 (0.10%) $0.13
Bed Bath & Beyond Inc. Stock Quote
Bed Bath & Beyond Inc.
BBBY
$11.41 (39.83%) $3.25
AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
AMC
$23.96 (8.03%) $1.78

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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