BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) had investors in its fits earlier this spring after BBRY shares soared from $7 to $11 in under two months, or 57% for those investors who were lucky enough to hold the shares during that time.
BlackBerry had beat Q4 EPS estimates by an impressive $0.08 in March and following that had been awarded an $819 million cash settlement in its legal dispute with chip-maker QUALCOMM, Inc. (NASDAQ:QCOM).
This was getting people very excited. Several analysts upgraded the stock and suggested that BlackBerry could even be a takeover target.
Yet on June 23, to quote the late, great Yogi Berra, it was “déjà vu all over again.”
Despite the earlier euphoria around the potential of the company’s software business, the Internet of Things, QNX, and the implication of all this on the company’s share price, following the company’s second-quarter earnings call, the narrative returned to “Is BlackBerry going to be able to pull this off, or not?”
What went wrong in Q1?
Despite coming in on top of analysts’ EPS estimates in Q1, the company missed on revenue expectations.
The company maintained guidance that it would be profitable on a GAAP basis for the full year and would be free cash flow positive.
Yet analysts chose to focus on the revenue miss, suggesting that it’s still uncertain whether or not BlackBerry will be able to reverse customer losses and if growth in the company’s software business will be enough to offset losses in other segments.
Buying opportunity
This could simply be another classic example of a market over-reaction which has presented a buying opportunity for investors who have been patient on the sidelines.
In the days following the Q1 conference call, several analysts upgraded their ratings on the stock, which suggests that momentum may still be on the company’s side.
Is BlackBerry a growth stock or a value stock?
It’s interesting to note the “fuss” around the company’s Q1 performance focused on the revenue miss without much mention of the company’s progress towards profitability.
Keep in mind that in its heyday, BlackBerry was very much a stock that fit the growth style of investing, where the agenda is for the company to continually get bigger and bigger.
Yet a closer look at BlackBerry today suggest it much more fits the bill of a value stock rather than a growth stock, which may have some in the market a little confused.
BlackBerry paid down $1.3 billion of debt and following the Qualcomm settlement and still has close to $2 billion of cash on its books.
That compares incredibly favourably to a market capitalization of just over $5.2 billion.
Not to mention that the company trades at just 1.9 times book value — nothing like a growth stock — and still managed to nearly grow its book value by 50% over the past six months.
Combine this value with the prospects of the potential of the company’s software business, which everyone seems to have conveniently forgotten, that’s a winning combination.
What’s not to like?
