Shares of BlackBerry (BB -2.04%) are trading near their 52-week lows and this once-popular meme stock has earnings on the horizon later this month. BlackBerry has transformed itself over the years from a business that made handheld devices into a software company pursuing growth opportunities in the cybersecurity and Internet-of-Things industries. With a market cap of less than $3 billion, it seems like it might even be a no-brainer buy. But before you pull the trigger on BlackBerry stock, you should look at the following three charts.
The company's sales have been lackluster
What can be frustrating with BlackBerry's stock is that while the business seemingly has plenty of growth potential, it hasn't been delivering much in the way of results to demonstrate that it is on the right path.
BB Revenue (Quarterly YoY Growth) data by YCharts. YOY = year over year.
The company has averaged a negative growth rate over the past five years. In its most recent quarter, for the period ending Aug. 31, sales of $175 million were nearly unchanged from the $174 million that the company reported in the previous period. While there are headwinds such as an ongoing chip shortage that are weighing down its business, declining revenue is not a new problem for BlackBerry, and it's one investors shouldn't simply assume will improve in the future.
At a time when remote work is on the rise and more businesses are going digital, BlackBerry should be benefiting from much stronger demand for its services. And the fact that it isn't should be raising flags for investors.
Cash flow has often been negative
Another concern about BlackBerry's business is that it doesn't consistently generate positive cash flow from its day-to-day operations.
BB Cash from Operations (Quarterly) data by YCharts
As of the end of August, the company reported cash and short-term investments totaling $707 million. The company isn't in a dire situation and it can fund this level of cash burn for years, but by depleting its coffers, the business will have fewer growth opportunities to pursue in the long run without either raising debt or diluting investors through stock offerings.
Its gross margin is worsening
What was encouraging when BlackBerry transitioned away from making cellphones was that by focusing on software, its gross profit margin improved. However, even that has been deteriorating in recent years.
BB Gross Profit Margin (Quarterly) data by YCharts
This could be a concerning sign that the company is needing to be more aggressive on price in order to be competitive and win over customers. It's a trend that investors should keep an eye on because with declining sales growth and a declining gross margin, it may be even more difficult for the company to generate positive cash flow and stay out of the red; last quarter, the company reported an adjusted net loss of $33 million versus an adjusted profit of $58 million in the prior-year period.
Investors should tread carefully with BlackBerry
BlackBerry will report its latest earnings numbers on Dec. 20, and investors shouldn't rush out to buy the tech stock before then. With lackluster financials and an uncertain path ahead, there's too much risk in BlackBerry to make it a tenable investment to hold right now. This year, its shares have fallen by more than 52% and there's no compelling reason out there to believe things will get better for the stock any time soon. Investors are better off avoiding the stock and instead buying shares of businesses that have much more growth potential.
