BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) is set to conduct its scheduled 2017 Annual General Meeting (AGM) on June 21, 2017, and release its second financial report this year just two days later. With all the market hype that has followed the stock so far in 2017, could there be any significant stock valuation changes after this week’s corporate events?
It has been a wonderful ride as investors who got into BlackBerry before May 30, 2017, have realized some sizable gains on the counter after the stock rallied on the news of a multi-million arbitration award against Qualcomm in April 2017 in a royalties overpayment dispute, which paid BlackBerry about US$940 million.
The stock has generated gains of about 68% since January, but it has since given up some the gains in the past week.
Will the higher valuation multiples be sustained, or should investors take profits and re-deploy them elsewhere?
Answers could lie in this week’s proceedings in the company’s AGM and its first-quarter 2018 financial results, in which any potential announcements from the company during or after the events will have a significant bearing on the stock price.
There could be some board changes, but this is doubtful as shareholders don’t have much reason to fire CEO John Chen and team just after they have declared the conclusion of the company’s long turnaround strategy.
There could be some hints about a possible acquisition though.
Now that BlackBerry has a much stronger balance sheet, with a boosted cash position which could be enhanced by a probable cash flow-positive quarter, the company might attempt something new. The company has started depending on acquisitions for growth after exiting the hardware-manufacturing business.
The company’s 2015 acquisitions of WatchDox Ltd., an Israeli enterprise data sync and share corporation, AtHoc, Inc., a United States networked crisis communications specialist, and Good Technology, a United States mobile security provider, as well as the 2016 acquisition of Encription Ltd., a United Kingdom cyber-security services firm, have become critical to BlackBerry as it is building its future as a security, software, and services firm.
Moreover, these latest acquisitions, as integrated with the company’s 2010 acquisition of QNX software systems, among others, are the backbone on which BlackBerry is making headway into connected cars and future autonomous driving vehicles.
BlackBerry could therefore announce a possible acquisition to further enhance growth prospects and potentially build some competitive advantages that support QNX’s advances in auto space.
This is especially critical after the recent Toyota Motor Corp. announcement that it will be gradually dumping BlackBerry’s QNX infortainment offering for Automotive Grade Linux (AGL).
Worse still, there are fears that the company could lose several QNX clients to Android Automotive, Linux, and AGL in the near future.
Even though QNX has revenues streams from the industrial and medical automation markets, BlackBerry has to respond to the significant automotive segment potential losses, and it has to do so fast.
I expect the stock to be very volatile this week after the financial news release.
There could be improvements in gross margins and positives from declining operating costs, as there may not be any further inventory write-downs, and the severe impairment losses recorded two quarters ago will likely not repeat. Analysts also expect the company to break even this quarter.
BlackBerry has to show further progress towards profitability to justify the recent growth in its valuation multiples, or else the stock may suffer as investors get more anxious about future growth prospects.
This could be an interesting week.
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Fool contributor Brian Paradza has no position in any stocks mentioned. Tom Gardner owns shares of Qualcomm. The Motley Fool owns shares of Qualcomm.