Is BlackBerry Ltd. Still a Smart Buy?

When it comes to stocks, what rises must also fall at some point. Between the end of March and the end of May, BlackBerry Ltd.  (TSX:BB)(NASDAQ:BBRY) had been on an absolute tear, appreciating from under $10 a share to over $15, giving investors a 65% boost. And then quarterly results came out, and the stock cooled off, giving 18% back.

Still, the company is on the up and up, which should appeal to investors who have been sitting on the sidelines. Nevertheless, BlackBerry is one of those stocks where Wall Street hears its name and assumes it is a failure irrespective of any financial results. So, let’s look at why the company first rose and then gave up 18%, and let’s determine if BlackBerry is worth buying.

In Q4 2017, the company had GAAP total revenue of US$286 million and a GAAP EPS loss of only US$0.09 per share versus US$0.45 a year prior. It even had positive free cash flow of US$16 million. This sent the stock up 5% almost immediately after the announcement — a needed win for the company.

But it got better when it was announced that BlackBerry would be receiving US$940 million from Qualcomm Incorporated because BlackBerry paid too much in royalties. Anytime a company receives a massive lump sum of cash, investors are going to get excited, which sent shares much higher.

Then Q1 2018 results came out, and analysts were concerned. Despite having GAAP EPS of US$1.23 versus a GAAP loss of US$1.28, investors were worried that the revenue was not quite as high as they’d wanted it to be. Despite being profitable, the concern was that the change to become a true software company would offset the losses in other divisions.

BlackBerry has made a massive switch and has become a much leaner and stronger company. And thanks to a series of ventures, it has completely left the hardware division — an event that I have argued is integral to BlackBerry becoming worthy of investment. Despite what some hardcore BlackBerry fans would say, Android and iOS have won. Period. End of story. So, BlackBerry moving away from hardware meant that it could focus on other more important industries.

BlackBerry focused on its QNX software. Ford Motor Co.  (NYSE:F) has gone all-in on QNX by making BlackBerry a tier-1 partner. Ford hired 400 of BlackBerry’s employees to be the car maker’s exclusive engineers for the QNX software in automobiles. This is a huge win for BlackBerry because as Ford continues to integrate the tech into more vehicles, the licensing fees continue to go up.

BlackBerry also focused on its Radar system. I like this because it can help save tractor trailer company significant money. By using this software, the companies can track where the trailer is and how long it’s taking to unload. According to Gus Papageorgiou at Macquarie Capital Partners, some early customers have seen a 17% reduction in the number of trailers they need.

Papageorgiou has suggested that between QNX and Radar, BlackBerry could reach US$45 per share in three years. That’s significantly higher than it is today.

Frankly, the day BlackBerry became a true software company was the day that I became interested in investing in the company. Although I’ve never pulled the trigger, I believe this is a great opportunity for investors looking to own one of Canada’s most well-known tech companies.

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Fool contributor Jacob Donnelly has no position in any stocks mentioned. David Gardner owns shares of Ford. Tom Gardner owns shares of Qualcomm. The Motley Fool owns shares of Ford and Qualcomm.

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