Since its June 23 earnings report, BlackBerry Ltd (NASDAQ:BBRY) shares have taken a hit, off about 10%. Turnarounds can certainly be choppy, especially in the highly competitive software space. But even with the recent drop in BBRY stock, investors may still want to be cautious.
![Even After Post-Earnings Pull-Back, BlackBerry Ltd (BBRY) Stock Still Looks Pricey](https://investorplace.com/wp-content/plugins/lazy-load/images/1x1.trans.gif)
It’s true that the company has made quite a bit of progress. Let’s face it, BlackBerry has had to pull off a wrenching transition from its traditional smartphone business, which got ravaged by Apple Inc. (NASDAQ:AAPL) and Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG). The company is actually lucky to still be in existence!
But over the past few years, CEO John Chen has crafted a solid strategy. Part of this has been outsourcing the smartphone business. He has also made a variety of acquisitions to bolster BBRY’s enterprise software offerings. Just some of the deals include: cybersecurity operator Encription; mobile device security software developer Good Technology; and, governmental notifications platform AtHoc.
For investors in BBRY stock, it’s important to note that Chen has a standout track record in the tech industry. Before joining BBRY, he led database maker Sybase out of its troubles. On taking the reins there, he took swift action to restructure the operations — with a focus on the mobile market. Chen would eventually sell Sybase to SAP SE (ADR) (NYSE:SAP) for a cool $6 billion.
The BBRY Plan
Back in April, holders of BBRY stock got a nice surprise when the company won a $940 million judgment against Qualcomm, Inc. (NASDAQ:QCOM). As a result, there is now roughly $1.9 billion in the bank account (this is net of debt).
If anything, the legal victory was one of the key catalysts for juicing the stock. So far in 2017, BlackBerry stock is up an impressive 44% compared to a 15.1% gain for the Nasdaq 100 Index.
Yet there still remain challenges, including the intense competitive environment. When it comes to the security market, BBRY must fight tough rivals that do not have to deal with retooling their businesses (such as, by moving to cloud services or other next-generation technologies). Some of the competitors include biggies like Fortinet Inc (NASDAQ:FTNT), Palo Alto Networks Inc (NYSE:PANW) and Check Point Software Technologies Ltd. (NASDAQ:CHKP).
OK, then, but what about BBRY’s auto tech business? Isn’t this a great category? This is true. But then again, the market is crowded. Let’s face it, the competitors include some of the world’s most powerful companies, including GOOGL, Tesla Inc (NASDAQ:TSLA) and even AAPL. Oh, and BBRY must also have to deal with QCOM and Intel Corporation (NASDAQ:INTC), which have been making aggressive moves into the space with acquisitions.
All these companies have tremendous advantages, such as trusted global brands, large teams of talented engineers and massive customer bases. So, in the auto tech market, it will be tough for BBRY to rise above the noise. In fact, there are already signs of troubles, as the company recently lost Toyota Motor Corp (ADR) (NYSE:TM) as a customer.
Something else: BBRY must deal with major reductions in its legacy businesses. During the latest quarter, the handheld devices business plunged by 75% to $37 million and the Service Access Fees segment dropped by 64% to $38 million. The Technology Solutions category also flat-lined (this includes the QNX auto technology).
Bottom Line On BBRY Stock
To make up for the shortfall in the legacy businesses, BBRY is relying on the enterprise software business, of course. But the problem is that the growth there is likely to remain modest. For the latest quarter, revenue fell from $106 million to $101 million and the orders fell 14%, to 3,000 compared with Q4’s 3,500.
And yes, BlackBerry stock is not cheap, with the shares are trading at about 45 times earnings. This is fairly steep for a company with sluggish growth and in the midst of a major business turnaround. For serious investors, it’s probably best to hold off for now on BBRY stock.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is the author of various books, including All About Commodities, All About Short Selling and High-Profit IPO Strategies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.