BlackBerry Ltd Is Down 25% in the Past 3 Months: Is it a Good Time to Buy?

When stocks go on dips in price it can be an opportunity to take advantage of a low price and buy-in at a discount. The danger of course is that you’re jumping onto a sinking ship that may still be on course for a further decline. Trying to time the market is difficult, and that is where fundamental and technical analysis can help guide you to determine the likelihood the stock has reached a bottom and whether it is a good value.

BlackBerry Ltd (TSX:BB)(NASDAQ:BBRY) is one stock that has been on a significant decline the past three months with its share price losing over 25% of its value. I’ll have a look at what is behind the loss and whether the stock is a good buy at its current price.

Why has the stock dropped so much in value?

Part of the reason the share price has dropped so much is because it climbed to a high of over $15 back in early June when a research company claimed BlackBerry would be a likely acquisition target and could reach US$20 per share within two years. The hype of that announcement started to wane and the stock went into a complete free fall after a poor earnings report later that month.

In the most recent earnings the company saw its sales drop by 41% from the prior year and although earnings were up to $671 million the company benefited from an arbitration award from its legal dispute with Qualcomm, Inc. that otherwise would have put the quarter in the red again. The software company has not recorded a profitable year since 2012.

BlackBerry is unfortunately no stranger to price declines as less than 10 years ago the share price was flying high, trading at over $100 a share. However, since then it has dropped over 90% of its value. It’s a different reality for the company now and it has had to learn how to reinvent itself into a predominantly software-focused enterprise.

Is there a path for BlackBerry to grow its sales?

Earlier this year the company announced a deal it had won with the U.S. government to be its main supplier of secure messaging tools. It is unclear how much potential revenue and profit that might bring in to the company but it does suggest BlackBerry is still relevant and a big competitor in the industry.

The other area that might generate growth for BlackBerry is in the auto industry where the company’s software could be the preferred operating software especially as the auto industry transitions toward self-driving technologies.

Should you buy BlackBerry today?

At a share price close to $11 BlackBerry is trading at over 40 times its earnings and that is an expensive premium for a company that is not showing any growth or even profitability. The company might have some growth and potential left in its tank especially as the world becomes more concerned with safety and security. However, I would wait to see the stock decline closer to $9 per share where it has seen some support, before buying the share.

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Fool contributor David Jagielski has no position in any stocks mentioned.  Tom Gardner owns shares of Qualcomm. The Motley Fool owns shares of Qualcomm.

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