For any number of reasons, some stocks just don't sit right with investors. Sure, in the near-term shareholders may enjoy some gains, but those upticks don't always warrant holding on to a stock for the long-run. With that in mind, we asked three of our Fool contributors to share the tech stock they would avoid at all costs and why. For different reasons, Hewlett-Packard (NYSE:HPQ), BlackBerry (NASDAQ:BBRY) and Twitter (NYSE:TWTR) all made our dubious list.
Bob Ciura (Hewlett-Packard): The stock I would avoid right now is HP. Over the past two years, HP's stock price has doubled, soundly outperforming the broader market during this time. And yet, HP's fundamentals have stagnated. This is dangerous territory for investors who are thinking about buying the stock.
HP's recent first fiscal-quarter earnings continued a disturbing trend for the technology giant. Revenue fell 5% in the quarter, which follows a 1% decline in fiscal 2014. Earnings per share fell 1% in the first quarter, and were flat last fiscal year.
HP's reliance on hardware and old areas of technology, such as printers, poses a problem since these are extremely low-growth businesses. In fact, printers make up approximately 20% of HP's total revenue, and revenue in printers fell 5% year over year last quarter.
So while other technology giants like Microsoft have made huge advances in higher-growth areas outside of hardware, HP looks more like a relic of technology's past with each passing quarter. True, HP's stock has rallied tremendously in the past two years, but the company isn't growing revenue and earnings. This is a dangerous scenario which, I believe, investors should avoid at all costs.
Andrés Cardenal (BlackBerry): When it comes to smartphones and mobile computing, it's all about the strength of the ecosystem, and the industry is widely dominated by giants such as Apple (NASDAQ:AAPL) and Samsung (NASDAQOTH:SSNLF). According to IDC data, iOS and Android devices accounted for 96.3% of all shipments during 2014, leaving BlackBerry with a minuscule market share of 0.4%. Meanwhile, BlackBerry shipments declined almost 70% in 2014 versus 2013.
Customers want a platform they trust and an ecosystem offering the most popular applications. Developers clearly prioritize those platforms providing access to a bigger client base, so the smaller BlackBerry becomes in comparison to the competition, the weaker the company and its customer proposition.
Total revenues during the quarter ended in November came in at $793 million, a big year over year decline of 33%. Management is doing a sound job at keeping costs under control, and BlackBerry produced positive free cash flows during the quarter. Also, the company has $3.1 billion in cash and investments on its balance sheet, so it has adequate financial liquidity.
However, until BlackBerry manages to reverse the decline in sales, things will continue deteriorating from a fundamental standpoint.
Tim Brugger (Twitter): By the time Twitter's earnings call took place on Feb. 5, its stock price had creeped up to $41.26 a share from the prior week's $36.68. Clearly, investors were expecting big things from the tweet master, and based on its 16% pop in share price the following day, Twitter delivered.
Twitter's Q4 and 2014 annual earnings beat expectations, and the aforementioned share price increase was the result. Its $479 million in revenue for the quarter was nearly double 2013's, and non-GAAP (excluding one-time items) earnings-per-share were twice analysts' expectations – so what's not to love? Several things.
Twitter's revenue comparables are minuscule, so significant percentage gains are a given and shouldn't drive over-buying. The fact it has nearly four times more shares outstanding than last year should be worrisome, but it isn't, and that's very worrisome. Nor do investors seem to care about Twitter's on-going monthly average user (MAU) problem. After accounting for an iOS-related glitch, Twitter gained an anemic four million MAUs sequentially, yet it trades at these levels?
Despite being over-valued and under-used, thanks to momentum traders Twitter shareholders have enjoyed a 35% gain year-to-date, but its share price is all over the place. In the last year alone, Twitter has traded between $29.51 and $56.99. The reason for the volatility – and why it will drop like a stone again – is because fundamentals have taken a backseat to momentum. That's also why Twitter is on this list.
Andrés Cardenal owns shares of Apple. Bob Ciura owns shares of Apple. Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Apple and Twitter. The Motley Fool owns shares of Apple and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.