TORONTO BlackBerry Ltd (BB.TO), one of the biggest losers on the Toronto Stock Exchange last year, is one of the top performers of 2014 as optimism grows and short-sellers hurriedly bail out.
The company's Nasdaq-listed shares (BBRY.O) rose 7.9 percent in trading on Tuesday, a day after a big run-up in the stock on the Toronto Stock Exchange.
Analysts believe the 30 percent surge in BlackBerry's share price this year has much to do with some fast moves on the part of new Chief Executive John Chen that have boosted shareholder sentiment and forced short-sellers to exit their positions.
"I think the majority of people trading the stock on a daily basis are probably not there on a fundamentals view, they are more likely looking at what the news flow is going to be on a one to two-month basis. And I'd agree that the news is probably going to be more positive than negative in the near term," said Atlantic Equities analyst James Cordwell.
Much of the optimism springs from the company finalizing a handset production deal with FIH Mobile (2038.HK) in December. The deal lowers the risk of the company having to book massive writedowns on unsold smartphones.
Other developments have also helped. The Pentagon indicated last week that BlackBerry phones account for roughly 98 percent of devices being supported as part of a program aimed at bringing greater mobile access to Department of Defense staff.
"Any rise in BlackBerry is based on optimism for the future, so given BlackBerry's renewed focus on secure government and enterprise sales, this Pentagon news is certainly positive," said Morningstar analyst Brian Colello.
"The larger question is how many more of these deals are in the pipeline and is it enough to make the business sustainable? That still remains the big question."
BlackBerry, which was one of the most heavily shorted stocks last year, has also seen some of the pressure lifted, as short-sellers have unwound their positions in the face of the positive news flow.
Traders who sell securities "short" borrow shares and then sell them in the hope that the price will fall, so they can buy them back more cheaply, return them to the lender and pocket the difference.
Data from Markit, a financial information services company, indicates that the percentage of shares out on loan have fallen significantly.
The firm, which collects data from custodian banks that run lending programs on behalf of investors who sometimes put their holdings into such programs, notes that roughly half the shares available for borrowing are out on loan, down from about three-quarters six months ago, indicating a sharp decline in short-seller interest in the stock.
The number of short positions indicates that just over 12 percent of the company's shares outstanding are out on loan now, and that is down from over 22 percent six months ago.
"If there is any optimism in the company making a turnaround you are going to see the stock price rise, and certainly I think short-squeeze has been a factor in the last few weeks. There is some optimism that John Chen can turn the company around and I think that is being reflected in the stock," said Colello.
In a short squeeze scenario, bearish traders that sold the stock short are forced to buy shares to avoid big losses on their positions - something that only serves to work against short sellers and push a stock higher.
Citron Research, run by California-based investor Andrew Luck, who is better known for short-selling stocks, last week published a note stating that short-sellers in BlackBerry had it wrong. The firm praised the company's recent strategic direction leading to a bump in the stock on Friday.
(Reporting by Euan Rocha; Editing by Stephen Powell)
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