Prior to the quarterly earnings report of Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB), the number of investors shorting the stock of the company surged to a record high, according to report from Bloomberg. The Canadian smartphone manufacturer is set to report its first quarter (ended June 1) financial performance for its fiscal 2014 on Friday, June 28.
Based on data compiled by Markit, a financial services firm, the combined short interest market value of Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) at the New York Stock Exchange (NYSE) and Toronto Stock Exchange (TSE) reached as much as 30 percent on June 20.
When investors take a short position, they bet against the stock by borrowing shares in anticipation that the stock price of the company will decline. Investors make profit by repaying the shares they borrowed at a lower price.
In previous weeks, several Wall Street analysts provided positive convictions regarding the upcoming earnings results of the Canadian smartphone manufacturer. RBC Capital analyst Mark Sue believes that Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) will report a profitable quarter and increased his estimate for the shipments of new BlackBerry 10 devices to 3.5 million units for the first quarter.
Sluggish Reports Not Alarming to Some Analysts
On the other hand, the most recent report from Deutsche Bank analyst Brian Modoff stated that the sales of the BlackBerry Q10 during its first weekend sales in the United States were sluggish. However, he believes that the first quarter earnings result of the Canadian smartphone manufacturer could bring an upside surprise on decent unit volume.
Data compiled by Bloomberg showed that analysts expect Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) to report $3.37 billion, an increase of 20 percent from its sales in the same period last year. The company is projected to report $0.08 earnings per share excluding one-time items compared with its recorded $0.37 losses per share a year ago.
Meanwhile, RBC Capital Markets latest report cited that the Canadian smartphone manufacturer’s earnings report tomorrow might reveal something for both longs and shorts. According to Sue, “Near-term, BlackBerry maybe seeing healthy BB10 sell-in as it fills the channels. Competitive devices in the second half may mean increased spending for BlackBerry to sustain its product refresh.”
Research In Motion Ltd (BBRY) Growth in Pace with Resources
Sue also explained that many hedge funds are shorting shares of the Canadian smartphone manufacturer because of their perception that it would be more difficult for the company to grow its units. He said the company has smaller resources and is still catching up compared with its major rivals Apple Inc. (NASDAQ:AAPL) and Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930).
In addition, Sue explained, “BB10 shipments are not sustainable without a meaningful increase in end-user demand and BB10 sell-through is soft in the crucial U.S. market. Enterprise demand appears tepid… Device margins likely to decline in the next several quarters on the mid-range Q5 and price discounting.”