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Are BlackBerry shares a buy at $16?

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BlackBerry (NYSE:BB) has had a weird ride so far in 2021. It’s not just cryptocurrencies that are driven by what’s happening on social media. No, by 27 January, BlackBerry shares had more than quadrupled from their end-of-2020 price. And the climb appears to have been based on a bullish frenzy on Reddit.

The January Reddit craze quickly subsided, and the price fell back, but still retained some of its gains. Since then, BlackBerry shares have been slowly declining. But that was only until June, and the BlackBerry share price has now been launched upwards again.

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It’s doubled in the past month and stands at a shade under $16, as I write. What’s behind it this time? Will we see a climb beyond January’s peak, and are BlackBerry shares a buy right now? It’s not easy to see a good reason behind the current bullishness. At least there’s none that I can see.

Software potential

BlackBerry is a very different company to the one that made those funny phones with keyboards all those years ago. It doesn’t make those any more, having transformed into a software developer. The company now does cybersecurity software and also for the automotive industry. I reckon those are areas with considerable long-term potential. But BlackBerry doesn’t appear poised for any great breakthrough or important development any time soon.

Forecasts for the year to January 2022 suggest a fall in revenue of 10%, to around $824m. As for profits, analysts have BlackBerry down for a loss per share of five cents for the year. So its shares have no forward P/E multiple to go on. And with the company on a market-cap of almost $9bn, we’re looking at a price to sales ratio of nearly 11.

BlackBerry shares attraction?

That doesn’t scream ‘buy’ to me, so what’s the attraction? Some US commentators suggest it’s all about shorting. BlackBerry is a big target of the shorters right now, with around 10% sold short at the moment. So is all the buying an attempt to force a short squeeze for a quick profit? It might well be.

I see a couple of lessons for long-term Foolish investors here. Perhaps the most obvious is don’t take any notice of social media. Ramping on Reddit is most definitely not a good reason to buy BlackBerry shares, in my book.

It was bad enough in the old days when short-term chancers would pump up shares on investing forums in the hope of making a quick killing. But social media draws in those who otherwise have little interest in, or knowledge of, stock market investing.

Valuation, valuation

The other lesson is that fundamental valuation is what counts. Sure, stocks can have very high valuations on traditional measures, but that is often justified. Plenty of companies have grown to outstrip their early high valuations, and then gone on to even greater things. I’m just not sure I’m seeing that with BlackBerry.

So are BlackBerry shares a buy at $16? Given that the price seems to be driven by nothing rational at the moment, they’re not a buy for me right now.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended BlackBerry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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