Many feel that they’ve missed the rally in BlackBerry Ltd (NASDAQ:BBRY). Coming into June, BBRY stock was already up more than 50%, trading north of $11 per share. But then something very interesting happened.
Citron Research, generally known for its short-selling savviness, starting touting the bullish rhetoric. But it wasn’t any old bullish talk. They were comparing BlackBerry to Nvidia Corporation (NASDAQ:NVDA), asking if BBRY could be the next NVDA.
For the under-the-rock dwellers, note that NVDA stock is up more than 700% over the past two years. That’s not to say BBRY stock is headed for a 500% to 700% rally over the next 24 months. However, Citron did make the case for shares to rally to $20 in the next two years. For those keeping score that’s still a 100% rally from today’s levels — assuming it doesn’t get bought out first.
Most of Citron’s case is predicated on the company transforming its strategy — much like NVDA. In the shell of a nut, Nvidia stopped focusing on making simple graphic cards. Instead, management put focus on artificial intelligence, data centers, self-driving cars, the cloud and other high-growth, futuristic technologies.
Why Should We Believe in BlackBerry Now?
BlackBerry has already taken itself out of the smartphone game. It was clear it would never claw back the market share it lost to Apple Inc. (NASDAQ:AAPL). Even if Apple were to falter, Samsung Electronic (OTCMKTS:SSNLF), Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) and others would likely pick up the slack.
However, BlackBerry is now licensing its name on devices that are mostly being sold overseas. While this may not result in robust revenues, it gets BBRY out of the boom-or-bust smartphone game. Additionally, without hardware production on its books, it clears up a lot of its plaguing cash burn issues.
The main treasure chest at BlackBerry is security. BBRY just won the rights to sell secure voice and text services to the U.S. government. Many consider its QNX platform to be a top pick among companies to use in its products. Specifically, Citron and others are looking for the QNX platform to be a key cog in the self-driving car race.
Dozens of companies are duking it out to be first on the road with a fully autonomous whip. However, BlackBerry’s playing a different game. It simply wants to secure those vehicles, regardless of which platform is operating it. Thanks to their intricate infotainment systems and other electronic controls, vehicles unfortunately have vulnerabilities. This can impact driver safety and their personal data.
Will car companies shun BlackBerry, though? Hardly. Its QNX platform is already in 60 million cars and has customers ranging from Audi to Toyota Motor Corp. (ADR) (NYSE:TM). The self-driving car catalyst could prove to be a serious driver for BBRY stock.
Trading BBRY Stock
Fundamentally, we’re still waiting for “the turn.” While BlackBerry is undoubtedly improving, taking one more big step in the right direction would significantly boost investor confidence in CEO John Chen & Company.
The $940 million settlement with Qualcomm, Inc. (NASDAQ:QCOM) is an obvious positive for the balance sheet. Approximately 80% of software and services revenue is recurring, which is a positive for the income statement. Additionally, management expects to be free-cash flow positive for the year.
“We secured key design wins in high growth segments of automotive technology…Our ecosystem is growing with Qualcomm and NVIDIA adopting BlackBerry technology for their automotive platforms.”
The fundamentals are improving and so are the technicals. On the chart, we have support near $9.50 and resistance near $10.50. A top near $11.50 is well-defined at this point. The MACD (orange circle) has reset and is now showing bullish momentum. Should the stock breakthrough $10.50, a run at its old highs is in the cards. But investors may want to saddle up for a longer-term ride, however volatile it may be.
The Bottom Line on BlackBerry Stock
Perhaps my one issue with BlackBerry is its buyback, which covers 31 million shares or roughly 6.4% of its float. While buybacks will theoretically help create shareholder value, it seems like it could be better used for top-line growth.
BlackBerry’s cash pile is likely too small for any notable acquisitions, shrinking its hoard will only make it less flexible.
Once red-hot, shares have been cooling off. The risk-reward is well-defined in BBRY stock and investors now have a solid option for going long. This gets them exposure to self-driving cars and possibly more down the road should management pull the right levers.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
