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Why BlackBerry Ltd. Can’t Gain Traction

Boy, what a year 2017 has been for BlackBerry Ltd.  (TSX:BB)(NASDAQ:BBRY). We’re only a little more than halfway to fiscal year 2018 and have seen some pretty dramatic volatility in the Canadian tech company’s share price. Starting the year hovering around the $9 level, shares of BlackBerry soared in late spring to nearly $16 before dipping towards the $11 level today.

The heightened volatility BlackBerry has experienced is not unusual for tech companies; however, what is unusual for this company is the shift in public sentiment from quarter to quarter or even month to month. Driven by a series of events this year, including a very bullish research report released by Citron Research analyst Andrew Left, in which he called for a US$20 price target at the beginning of June (approximately $27 at the time), at a time when the stock price was trading around US$11 (approximately $15), shares of BlackBerry’s stock price soared higher as investors began to consider the potential of the software company’s momentum in the autonomous vehicle realm.

With BlackBerry’s valuation increasing to $8.4 billion at the most recent 52-week high, investor optimism appeared to have peaked, with the firm since losing nearly $2.5 billion of its valuation as shares have flatlined.

The catalysts for the somewhat rapid decline over the past two-and-a-half months are hard to pinpoint. Much of the drop is likely attributable to the idea that investors overreacted to the positive hype relating to the company’s $100 million QNX autonomous vehicle driving hub and bullish analyst reports focusing on this one key aspect of BlackBerry’s business model. This overreaction, then, could account for some sort of correction or stabilization of the company’s stock price; however, a drop of this magnitude since June implies additional factors that may not have been considered during the run up in the tech company’s share price.

First of all, it should be pointed out that amid all the hype relating to the Citron research report, most other analysts had neutral or negative outlooks for BlackBerry. The economics of the autonomous driving industry are not yet known, and as such, many assumptions being made citing significant share price appreciation may have over-extended some assumptions.

This general sentiment among analysts has been buoyed by a “sell” recommendation from Goldman Sachs released last week. The report cited concerns about BlackBerry’s ability to out-innovate competition, particularly within the company’s mobile messaging business.

Bottom line

BlackBerry is working to carve out a profitable niche amid investor pressure to reinvent the business. While CEO John Chen has done a relatively good job so far, I wouldn’t bet the farm on a long-term buy-and-hold strategy with BlackBerry just yet.

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Fool contributor Chris MacDonald has no position in any stocks mentioned.

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