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Should You Buy BlackBerry Ltd. if Goldman Sachs Says Sell?

BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) can’t seem to catch a break. If you believe in the long-term BlackBerry story, you should ignore the gang at Goldman Sachs, but the stock could hit a rough patch for a few quarters if the Goldman analysts are right.

On March 9, Goldman Sachs analysts Simona Jankowski and Doug Clark downgraded BlackBerry to a sell rating. The news wiped 7% off the stock price by the end of the trading session and at the time of writing, investors were looking at a 10% haircut.

The analysts said the rebound in BlackBerry’s stock over the past year is due to cost-cutting measures and they believe the second half of the turnaround effort is going to be more challenging.

Jankowski and Clark think BlackBerry’s success now depends on strong sales of its Enterprise Mobility Management (EMM) software, which is facing stiff competition from MobileIron, Good, and AirWatch.

BlackBerry’s projected $500 million in software sales this year is too ambitious, according to the analysts, because channel checks indicate lukewarm interest in the company’s EMM solution. They also believe BlackBerry faces challenges in stealing market share already held by entrenched competing products.

Another reason for the downgrade is the projection of lower revenues from BlackBerry’s service offerings. Service and software are high-margin business units compared to BlackBerry’s hardware division, which the analysts say is not profitable.

Given the outlook, Jankowski and Clark think BlackBerry will miss expectations by 13% for the February quarter, and full-year 2016 earnings per share to be well below consensus estimates.

What should investors do?

BlackBerry has come a long way and John Chen and his team have received a strong vote of confidence from some large institutional investors, including FairFax Financial and the Ontario Teachers Pension Plan Board.

At the same time, the opinions of certain analysts can have a strong influence on market sentiment, and a sell rating from Goldman Sachs can carry a lot of weight, as we have seen with the recent slide in the stock.

BlackBerry is making good progress and its focus on the emerging Internet of Things market looks promising. The company is also negotiating important partnership deals with its competitors in order to ensure its business customers get the best combination of products and services available to manage their communications operations in a secure and efficient manner.

Turnaround stories are always risky bets and the recovery in the stock price is often volatile. However, they can be the types of investments that add some big returns to your portfolio if you get the timing right.

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Fool contributor Andrew Walker has no position in any stocks mentioned.

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