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Here Is Why I’m Not Buying BlackBerry Ltd. Just Yet

There’s no denying that new BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) CEO John Chen has done a fantastic job so far. When he took over in late 2013, the company’s survival was in question. Since then, he has cut costs, repaired the balance sheet, and refocused the business. As a result, the company is on solid footing now, and its stock price has responded in kind.

That said, is now a good time to buy the stock? I don’t think so, and I explain why below.

Why now is a bad time

Mr. Chen has made it very clear what BlackBerry’s next step is: growing software revenue. His goal is for BlackBerry is to reach US$500 million in software revenue this fiscal year, representing more than 100% year-over-year growth.

In my opinion, there’s no way this goal can be met. Software revenue totaled only US$67 million last quarter, which was below expectations. Going forward, the division will have to grow 27% each quarter to meet Mr. Chen’s goal.

Meanwhile, there are concerns that BlackBerry’s software isn’t catching on. Citigroup estimates that only about a third of EZ Pass subscribers have been converted into paying customers. Worryingly, Mr. Chen claimed he didn’t have that number handy during BlackBerry’s last conference call. Morgan Stanley and Goldman Sachs analysts have also reported that BlackBerry’s software is gaining little traction.

Keep in mind that BlackBerry trades at about 1.5 times revenue, even though the company is shrinking and profitability is weak. There’s clearly some optimism built into the stock. So, any disappointing numbers this year could wreak havoc on the share price.

Why there may be a better opportunity

On the surface, BlackBerry looks like an expensive stock. But when taking a closer look, the company has a lot of hidden value.

Let’s start with its portfolio of 44,000 wireless patents, which have a book value of about US$1.4 billion. Most analysts believe these patents are worth far more than this, and I agree. These patents could be a great defence (or weapon) in lawsuits, which are not uncommon in the mobile industry.

Second, BlackBerry is unquestionably a leader in security, which is top-of-mind for large enterprises today. It’s why companies such as Samsung have had a hard time appealing to these potential customers.

Finally, BlackBerry’s QNX division could become a leader in the Internet of Things (IoT) industry. It has already done very well in the auto infotainment space, and could easily transition to other markets.

Do you see where I’m going here? BlackBerry could be extremely valuable to a potential acquirer. At the top of my mind is Samsung, which has already approached BlackBerry, only to get rejected. But if BlackBerry continues to disappoint investors, it may face increasing pressure to sell itself, especially if its stock price is depressed too. In this scenario, I might just load up on BlackBerry shares. Until then, it’s important to just be patient.

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Fool contributor Benjamin Sinclair has no position in any stocks mentioned. The Motley Fool owns shares of Citigroup Inc.

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