BlackBerry: Don’t Count Us Out Yet

Gayron is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A company that doesn’t seem to be growing, or increasing its revenues, and profits might not be a good company to invest in, right? Well that seems to be exactly what many people think of this company but if you look deeper into the fundamentals of such a company you may see healthy vitals. Maybe a name change is just the start of what’s to come for this smartphone pioneer. The ticker for BlackBerry has already changed on both the Toronto Stock Exchange (TSX), and on the NASDAQ Global Select market to (TSX: BB), and (NASDAQ: BBRY). The only thing left to do is get approval from shareholders at its Annual, and Special Meeting to be held in July 2013. Although BlackBerry has fallen behind in market share for the smartphone industry, I don’t think we should count them out just yet.

The numbers game

BlackBerry always had good fundamentals throughout its existence, and it will most likely continue on this path for years to come. BlackBerry’s third-quarter financial statements illustrate that BlackBerry is exceptionally healthy, and can afford to employ new strategies, and establish new acquisitions. Both Apple (NASDAQ: AAPL), and Samsung (NASDAQOTH: SSNLF) have high market caps, with Apple leading the way at $384.19 billion, Samsung at $149.20 billion, and BlackBerry’s market cap is at a mere $5.4 billion. BlackBerry had little to no debt last quarter with its equity at $9.46 billion, and its total current assets were at $7.1 billion-- including a little over $1.5 billion in cash on hand. While both BlackBerry and Apple have little to no debt; Samsung, on the other hand, has debt totaling $11.12 billion with a debt-to-equity ratio of 9.59.

BlackBerry’s financial strength indicates that it would not default on short-term obligations because of its high liquidity, with a Quick ratio (total current assets/total current liabilities) of 1.70 against an industry average of 0.90, and a Current ratio (total current assets – inventories/total current liabilities) of 2.10 against an industry average of 1.10. What if BlackBerry invested this money in better technology and design?

Both Apple and Samsung are a little different with positions in different markets like PCs and televisions. Apple’s quick ratio is 1.50 against an industry average of 1.00, a current ratio of 1.80 against an industry average of 1.30, and Samsung’s current ratio is 1.89. Simply put, BlackBerry, Apple, and Samsung all have high liquidity.

On the profitability side of things BlackBerry’s 5-year averages show future potential, with an ROA (net income/total assets) of 14.30% against an industry average of 1.30%, and an ROI (gain from investment – cost of investment/cost of investment) of 19.70% against an industry average of 2.10%, which indicates that this would be a good long-term opportunity. Apples ROA is 20.80%, and an ROI of 32.10%, which is higher than Blackberry’s ROI. While, Samsung’s ROA is 11.45%, which is lower than BlackBerry’s ROA. Remember these are 5-year averages, so a long position is what we want to go for here. I know I would want to be on the winning side of a company's turnaround.

BlackBerry’s ammunition for success

BlackBerry has all the right ammunition to increase market share, and product design. In the mobile smartphone industry the BlackBerry is perceived as having the most secure mobile smartphone system. BlackBerry has the upper hand on its competitors by having its own enterprise server, which produces the most secure mobile system in the industry. BlackBerry went up a notch from just delivering smartphones; its ability to deliver mobile information sharing is much faster and quicker than its competitors. This is permitted because of exceptional R&D investment by BlackBerry, where its competitors seem to lack effort. Both Apple, and Samsung lack major investment in R&D. Apple’s R&D investment rose to 3% as a percentage of revenue from 2.5% last quarter, Samsung spends 5.7% for R&D investment as a percentage of revenue, and BlackBerry invests14.10% as a percentage of revenue. BlackBerry’s BlackBerry Z10 has a longer battery life cycle than Apple’s iPhone 5, as shown in the picture below.

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As seen in the picture above the Z10 has 360 mAh more than the iPhone 5. Milliamp Hours (mAh) is described as the total amount of energy a battery can store at one time. I don’t think BlackBerry is betting its future on the Z10; I think it’s just a starting point for what is to come. BlackBerry possesses around 7,600 patents like the QWERTY keyboard and the thumbwheel it displayed on its previous BlackBerry devices. It is said that in the mobile smartphone industry BlackBerry is a leader in e-mail management. With this kind of ammunition BlackBerry should be able to corner the competition, and grab a generous amount of market share from its competitors.

A foolish conclusion

BlackBerry is losing for now, but who knows what the future holds for a company of such stature, and healthy fundamentals. Maybe a change in management and a change in product design could boost its market share. BlackBerry has the capital to do an overhaul in every area that needs it, with a little over $1.5 billion cash on hand this might become a reality as seen with the Z10 below.

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BlackBerry’s quarterly report on June 28 was interesting, and maybe changed the minds of some analysts, and investors. I think BlackBerry is a good investment opportunity for the long-term. BlackBerry’s stock will drop for a few days since the numbers missed expectations but its stock will eventually go back up. The question is where should you jump in to make a profit?

BlackBerry is just adjusting right now and going through a transitional phase. Keep in mind that during transition it’s rough at the beginning, so the sales numbers may hurt at first.

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Gayron Wainwright has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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