US companies caught up in meme stock fever, again

Several US stocks have undergone steep price appreciation over the past week including BlackBerry. In our view, this is purely the result of resumed interest in the stock from Internet message boards, like WallStreetBets on Reddit, and not rooted in any news or fundamental shifts in the business.

No-moat BlackBerry (BB) surged into the US$17 range over the past week, up from around US$10 at the end of May. As of the morning of June 3, BlackBerry’s share price has gone up as much as 100 per cent from its prior-week levels, with increased volatility. We are we are maintaining our US$7 per share fair value estimate and view shares as fundamentally overvalued. 

Stock price movement $US | BlackBerry, AMC Entertainment, GameStop

Source: Morningstar

We’ve seen this play out before with BlackBerry shares, back in late January 2021 when Reddit users created a retail investor groundswell for stocks like GameStop (GME), AMC (AMC), and BlackBerry. In less than two weeks, BlackBerry shares spiked over 300 per cent, just to plummet over 50 per cent in the following week. We caution long-term investors about the risk of a similarly precipitous decline to come for BlackBerry this time around.

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Our long-term thesis for BlackBerry is unchanged. We expect 12 per cent compound annual growth for the firm’s software and services revenue over the next 10 years as it partners with autonomous vehicle OEMs and wins new customers for its enterprise software suites. Finally, we note that BlackBerry is in ongoing talks to sell off a large portion of its patent portfolio, but until a deal is reached, we model a potential deal as value neutral to our US$7 fair value estimate.

Year-to-date % increase | BlackBerry, AMC Entertainment, GameStop

Source: Morningstar

William Kerwin is an equity analyst for Morningstar.