BlackBerry Ltd. Stock: Does This 30% Plunge Make it a Buy?

Investors in BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) stock are wondering whether a ~30% plunge in its value over the past three months is a buying opportunity or a sign of a failed turnaround strategy.

And this confusion is very much justified after investors saw the shares of this software maker touch a two-year high in June on optimism that the company’s QNX industrial operating system for self-driving cars will bring in revenues and help this doomed technology company revive its old glory.

The recent price action in BlackBerry stock suggests that that optimism was built on a weak foundation. Investors are losing their faith fast on CEO John Chen’s turnaround strategy to transform BlackBerry into a software company targeting automakers and other industries.

The rally, which started this spring and more than doubled BlackBerry’s stock price in just three months, is fizzling out quickly. After losing 30% of its value since reaching the June high, BlackBerry stock is trading at $10.72 a share at the time of writing.

What went wrong?

The main reason BlackBerry has lost investors’ favour so quickly is the realization that the path to remake BlackBerry’s business isn’t simple.   

BlackBerry has been counting on its flagship software and services business for long-term growth after its revenue from the smartphone segment disappeared.

The QNX operating system, which powers automobiles’ infotainment systems, is forecast to be the second-largest component of the firm’s software sales, after its enterprise mobility management business.

While BlackBerry saw QNX as a long-term growth driver, with opportunities in areas such as the Internet of Things, many analysts now see some significant competition from other tech giants.

Realizing these uncertainties, this month Goldman Sachs issued a “sell” recommendation on BlackBerry stock, citing competition from Citrix Systems, Inc., Microsoft Corp., and VMWare, Inc., which bundle those products into broader business software offerings.

Investor takeaway

I think there are significant risks to BlackBerry’s turnaround strategy. The QNX market has just started to develop. Indications are that it’s likely to become crowded as much larger and stronger competitors enter.

In this fluid situation, it’s better for long-term investors to wait on the sidelines and look for meaningful signs of a turnaround before committing their dollars.

BlackBerry’s stock, at its current level, may be a good bargain for short-term investors. But I don’t think it’s the right time for long-term investors to get excited.

Motley Fool CEO Just Alerted Investors To His Recent “Buy” Alert on CNBC Asia

11 months ago Motley Fool co-founder and CEO, Tom Gardner, recommended a small-cap tech company to exclusive members of his U.S. newsletter service, Motley Fool Stock Advisor.
Today, that stock is up over 200%, and members that invested on his recommendation have more than double their money in less than a year.
You see, Tom found out about this e-commerce company while on a trip to Toronto, as he visited our Canadian investing team. Click here to learn more!

Fool contributor Haris Anwar has no position in any stocks mentioned.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.