By Jeff Reeves
BlackBerry , the technology stock formerly known as Research in Motion, is off almost 30% from its January highs.
Thus, the million-dollar question for BlackBerry stockholders is whether the company is just pausing for a breather before it continues its ambitious return to smartphone prominence, or whether BBRY was simply a great swing trade to end 2012, and it's now time to run away screaming.
While it's always difficult to speculate on consumer tech and even more troublesome to plot a course of a very volatile issue like BBRY, I think it's the latter.
Poor initial demand concerns: The BlackBerry admittedly has a global following, unlike the Apple (NAS:AAPL) iPhone, which many claim is a distinctly American gadget that lacks international dominance. But the initial-launch markets haven't been much to sneeze at. Consider a report this week that shows a U.K. sales slump right out of the gate, with poor sell-through rates and recent price cuts. The story is the same in BlackBerry's native Canada, with Canaccord Genuity writing that it "reduced our February quarter BB10 smartphone shipment estimates from 1.75M units to 300K units." That number was later revised up to 800,000 , but that's still a stunning drop and doesn't bode well for other global markets.
Questionable U.S. launch timing: Regarding the U.S., a recent report hints that the Z10 will first hit the U.S. market on March 15 via carrier AT&T (NYS:T) . Unfortunately, that is just a day after the Galaxy S4 from Samsung is debuted. Not a great way to sell yourself, considering Samsung is a transcendent smartphone brand that has caused headaches for the iconic Apple iPhone already.
App troubles : BlackBerry touted the fact that its new OS has the biggest app universe "at launch" of any smartphone software. That may be true, but it may be because the company is the last in line and a number of amazing apps have already been developed for iOS and Google (NAS:GOOG) Android.
But aside from not having any unique first-movers, the real risk is big-name apps that won't play with BlackBerry. Consider Netflix has no plans for a BB10 app . Consider that Yahoo! has killed its BlackBerry app even as it continues to provide stock quotes, weather, email and other content support via apps to Android and iOS devices. So much for countering the old criticism that BB can't compete on the app front.
Wall Street sentiment : Short interest as of mid-February was actually up over January short interest. And though the very high volume in this stock may prevent a dramatic short squeeze, it's still worth noting that a massive 136 million shares are held short. Don't discount the negativity on Wall Street and the ability to drive down share prices even if you think BlackBerry doesn't "deserve" it. Furthermore, at the end of February, MKM partners cut BBRY to "sell" with a target of just $10. And while UBS did raise the company to "neutral," BlackBerry is already above its forecast of $13 for shares. So clearly Wall Street is not betting on big-time upside here.
So how can investors play this? Well, BlackBerry remains volatile, so I would advise against selling shares short lest you get squeezed the wrong way. The safer route in my opinion is to buy puts. For instance, right before the event, I recommended buying June 22 puts on BBRY (then RIMM) at $17 — and investors are near the money on that trade.
June 22 puts with a strike price of $17 still look good to me, too. Contracts are $4.99, so $12.01 puts you at the money. If we "sell in May and go away," and if RIMM launch data comes out ugly in the first several weeks ... then look out below.
I'm also considering a shorter-term play via the purchase of the April 5 puts with a strike price of $16.50 . As of this writing, contracts are $3.70, so you're "at the money" at $12.80 if you buy at current pricing. That's less than a 5% drop from here and very reasonable.
Based on the fact that I expect continued trouble for BlackBerry and some seasonal softness in the market, it's possible the stock could fall another 15% to 20% in a matter of months. Should the launch data be ugly, heck, we could get that in just a few sessions after the company reports earnings at the end of March.
What's your take on BlackBerry? Share it in the comments section below, or on Twitter @JeffReevesIP.
Jeff Reeves is the editor of InvestorPlace.com and the author of "The Frugal Investor's Guide to Finding Great Stocks." Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP .