Should You Stay Away From BlackBerry Ltd.?

Shares of BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) settled at $12.62 on Monday to start the trading week — up 0.40%. The Canadian-based multinational has stabilized after a disappointing earnings report stalled a great deal of momentum that had been built up in 2017.

The share price has gone up 36% so far this year. Once known for its mobile phones, BlackBerry is now primarily a software company. One of its new projects includes a $75 million dollar project on a self-driving car hub. The company wants to be a leader in cybersecurity technology and has launched a number of initiatives in that area as well.

Recent financial results cooled investor sentiment

In late June, BlackBerry reported a profit of $671 million — $1.23 per share for the quarter ending May 31. This was in contrast to a loss of $670 million in the same period in 2016. However, an arbitration award of $940 million from QUALCOMM, Inc. significantly inflated the result. Revenue missed analyst estimates by almost $30 million; it was reported at $235 million. This was down from $400 million in the previous period.

The report caused the stock to fall 12% in one day, and short interest spiked near an all-time high. In an interview with CNBC following the release of the news, CEO John Chen promised that BlackBerry was set to make acquisitions and major investments in growth in the future. The share price has gone up over 80% since his hire in November 2013.

Last week, BlackBerry announced that it had won the right to sell tools for encrypting phone calls and text messages to the United States government. BlackBerry joins competitors Apple Inc. and Samsung — companies that have received an endorsement from the NSA’s National Information Assurance Partnership. These encryption products are also used by government agencies in Africa, Asia, South America, and Europe.

Where is the stock going?

BlackBerry possesses a very stable stream of revenue; almost 80% of revenue is recurring courtesy of its software and services. The company has increased this base since last year, looking to shore it up in pursuit of aggressive investment in new projects.

The company’s agreement with the U.S. government on encryption products is a big deal. The cybersecurity industry is expected to grow from $137 billion in 2017 to over $230 billion in 2022, with North America boasting the largest share of this market.

The eventual release of self-driving vehicles continues to attract major attention. Many major automobile companies have announced that they will be introducing a self-driving vehicle by the early 2020s.

BlackBerry still has many hurdles to jump. It is a company in transition and will continue to attract interest from short-sellers that may frustrate the share price in the short and medium term. Investors looking for a long play should feel confident in its world-class leadership and forward-thinking product line. After being battered following its recent quarterly report, the stock could be a great value add to any portfolio.

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Fool contributor Ambrose O'Callaghan has no position in any stocks mentioned. David Gardner owns shares of Apple. Tom Gardner owns shares of Qualcomm. The Motley Fool owns shares of Apple and Qualcomm.

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