The restructuring of BlackBerry Ltd.(TSX: BB)(NASDAQ: BBRY) is complete and the company now finds itself at a pivotal point in its turnaround story.
Employees that stayed with the firm are rallying behind their new CEO, John Chen, and the equity market is beginning to believe the tale too — but for how long?
Shares of BlackBerry are trading near 12-month highs. The company just launched its new Passport device and shareholders are analyzing the latest earnings report to look for indications that the company is truly back on track.
So, is BlackBerry still doomed despite the recent fanfare, or is this the start of a long-term rally that value investors should bet on?
Here are a few possibilities that could drive BlackBerry shares significantly higher.
1. Handset home run
One way the stock could rocket higher in the next couple of years is better-than-expected success from one of the new devices. The Z3 is holding its own but BlackBerry needs the Passport or the coming BlackBerry Classic to really knock the ball out of the park if the stock has any hope of taking off.
Now, a home run these days for BlackBerry is the equivalent of what would have been considered a single back when the company was dominating the smartphone market.
In fact, BlackBerry only has to sell 10 million devices a year to be profitable. If only one of the new products catches on with consumers, the free cash flow could come rolling in very quickly.
To put the market size in perspective, more than 10 million iPhone 6s were sold in one weekend.
2. Hedge fund activism
News that another big company or activist fund manager has acquired a significant position in BlackBerry could also set the ball rolling. For a while, it looked like Prem Watsa had lost his magic touch after his company, Fairfax Financial Holdings Ltd., bought nearly 52 million shares of BlackBerry. Fairfax trimmed its position earlier this year but still holds nearly 9% of the stock, the second largest stake in the company. Primecap Management, a California-based investment firm, currently owns more than 10% of BlackBerry.
If the big boys start to believe there is a windfall coming from BlackBerry, the stock could run higher very quickly. A number of investment firms already hold large BlackBerry positions.
3. Internet of Things
This whole buzz about the Internet of Things (IoS) seems to be getting ahead of itself a bit, and the idea that equipment, appliances, and our everyday gadgets can communicate with each other via the Internet is somewhat concerning from a security perspective. Whether or not the concept actually rolls out ubiquitously is yet to be seen. The interesting point for investors in BlackBerry is the fact that the company has the expertise through its QNX Cloud unit to play a profitable role in the development of IoS.
And the reality?
It is still too early to tell whether BlackBerry shareholders will see big gains in the short term, but the upside potential probably outweighs the downside risks at this point. Investors prepared to ride out a few more uncertain quarters, and some volatility in the stock, could see a meaningful increase in the shares over the next few years.
