Let’s start with some good news: Last month, BlackBerry (NYSE:BB) posted earnings of 3 pennies per share, topping Wall Street’s expectations by, well, 3 pennies per share. Revenue also came in better than expected: $213 million for the first quarter compared to expectations of $208 million.
But it was still a 9% year-over-year decline on the top line, and BB stock went tumbling as a result.
The day after announcing this, shares of BB stock lost 9%. The following Monday, they lost another 6%. In the last six days of June, they lost over 18%, and haven’t regained much since.
And yet, they remain in the black during their most recent one-year and three-year periods.
The Rebirth of BB Stock
BlackBerry, for those who haven’t been paying attention, no longer makes smartphones. Apple (NASDAQ:AAPL) won that war, to say the least.
Now, the company is focused on providing software and services, particularly for the driverless car and security markets. The company’s QNX software is embedded in over 120 million automobiles worldwide, its CEO said. And its security tools will be used in Bullitt’s CAT and Land Rover durable phones.
Revenue from its enterprise software and services business rose 18% during the first quarter, too, which seems promising. But overall, the company isn’t currently very profitable, is slated to shrink earnings by 17% per year over the next half-decade, and costs six times its sales.
Of course, where there’s a bloodbath, there’s people betting on a turnaround. While sales this year are expected to drop 8% overall, they’re expected to rise almost 7% for next year.
I remain skeptical. BlackBerry is a rocky ride of a stock. In general, I like enterprise software plays and I like that BB has a plan for recovery. Security and driverless cars at two hot trends as well. But that means plenty of up-and-coming startups are going to innovate fast in an attempt to steal a slice of those pies.
The mean analyst price target for BB stock is $11, which is just over $1 more than its current price tag, even after the sell-off.
BlackBerry has a lot of baggage and it’s going to affect investors psychologically even as the company moves into its new enterprise services identity. The excitement of betting on a down-and-out darling will wear off, and BB stock is going to have to prove it’s really worth betting on.
In the short-term especially, many investors may simply want to regain their losses and move to greener pastures. If you think BB stock has what it takes in the next five years or so, hold on tight.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.
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