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BlackBerry Ltd.: Is it Time to Buy the Dip?

BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) has arguably been one of the hottest turnaround candidates this year, as shares surged over 71% from trough to peak following promising news that suggests the former handheld-device maker has successfully reinvented itself as a software developer. More recently, shares have pulled back violently as analysts continue to downgrade shares of BlackBerry over concerns of rising competition and potential overvaluation.

In my previous piece on BlackBerry published on June 12, 2017, I’d warned investors that the shares appeared to have soared above what’s realistic and that more volatility would be on the horizon. I’d mentioned that BlackBerry was on the right track, but it would face intense competition going forward. Shares of BlackBerry are now down nearly 20% since that piece.

Investors were right to be optimistic and bullish on BlackBerry and its promising QNX project, but it appeared that the rally was way overdone and a pullback was in the cards. More recently, Goldman Sachs Group Inc. issued a “sell” recommendation on BlackBerry, citing competition concerns as the reason for the downgrade. Shares of BB plunged 4.52% in a single trading session following the announcement, and, unfortunately for shareholders, BB could face some serious downside from here as the stock surrenders more gains from the huge rally which happened earlier in the year.

When will BlackBerry become a buy again?

BlackBerry still appears to be an intriguing turnaround play, but don’t expect shares to rebound overnight. Over the course of the long term, I believe it’ll be a slow and steady move upward for BlackBerry. The turnaround story is the real deal, and there are many reasons to be bullish on the innovative tech that the company has been working on.

Software is a high-margin business, and I believe the company will have much more success than it had when it was in the consumer electronics business. The QNX operating system is an incredibly secure piece of software that has many applications beyond the mobile phone space. (Think self-driving cars.)

Bottom line

The turnaround is for real, but investors are going to need to be patient. CEO John Chen is doing a top-notch job at transforming the company, but shares are still going to be extremely volatile from here, and you could lose your shirt in a hurry if you buy after sharp rallies.

If you’re keen on owning shares, use a dollar-cost-averaging approach to minimize your risk.

Stay smart. Stay hungry. Stay Foolish.

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Fool contributor Joey Frenette has no position in any stocks mentioned.

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