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BlackBerry Ltd.: Is This Tech Stock a Buy After Losing Nearly 30%?

Experiencing a nearly 30% drop in stock price over a few months can be a bit daunting for many investors. That’s exactly what’s happened to BlackBerry Ltd.  (TSX:BB)(NASDAQ:BBRY).

The first half of 2017 was meteoric with the stock rising by over 65% from a low of $8.98 to a high of $15.82. There were a few reasons for this.

First, the company finally made the move to become a 100% pure-play software company. BlackBerry made a series of smart licensing agreements that gave other manufacturers the right to use BlackBerry’s software in their own phones. If you’ve read my previous articles about BlackBerry, this was an absolute must for the tech company.

Second, BlackBerry won a big battle against Qualcomm Incorporated. BlackBerry would receive US$940 million because it had paid too much in royalties. Adding this much cash to the books gives BlackBerry even more gunpowder to make necessary moves.

And finally, there were rumours that BlackBerry could be a target for acquisition. With Intel Corporation spending US$15 billion to acquire Mobileye, a driverless car technology firm, investors perked up because BlackBerry owns QNX, which is an operating system for vehicles. Could BlackBerry be bought?

But then the company released its Q1 2018 results, and revenue had dropped quite significantly to US$235 million from US$400 million a year prior. The company had a GAAP EPS of US$1.23 versus a GAAP loss of US$1.28 in the year prior, but that big drop in revenue scared investors.

So, with the stock down by 30% since those results were released, investors are asking themselves whether they should expect further losses or if this is the bottom.

The answer is never simple, of course, and trying to time the market can be incredibly difficult, even for the best investors. However, I believe that there is considerable growth potential for BlackBerry in the future.

It starts with its cash. At the end of the quarter, BlackBerry’s net cash balance was US$1.9 billion, or CAD$2.3 billion. At a market cap of $5.7 billion, 40% of that value is its cash. Therefore, when you buy a share of BlackBerry, 40% of that is just the cash on the books. That gives it a strong position because it’s not likely to go lower than its cash position.

Then there is BlackBerry’s focus on two primary software products: QNX and Radar.

Ford Motor Co. has made BlackBerry a tier-1 partner and hired 400 of BlackBerry’s employees to be exclusive QNX engineers. As the software is integrated into more vehicles, the revenue that BlackBerry will earn will also rise.

On the Radar front, this software allows tractor trailer companies to effectively track where shipments are, thus allowing the shipping company to save money. For example, the company can track how long it takes to unload a trailer, which helps it gauge what to charge. This can also help the shipping companies reduce the number of trailers they need in their fleet; some early customers have seen a 17% drop in trailer need.

Gus Papageorgiou, an analyst at Macquarie Capital Partners, believes that QNX and Radar could push BlackBerry to US$45 per share in three years. The interim will likely be painful, but once these products reach scale, the revenue could be lucrative.

We all know that BlackBerry lost the phone wars. Android and iOS won. However, now that BlackBerry is a true software company, its investments should begin to pay off. There’s no denying that the future could be painful, but in the long term, as QNX and Radar grow, I expect BlackBerry to grow as well.

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Fool contributor Jacob Donnelly does not own shares in any companies mentioned in this article. David Gardner owns shares of Ford. Tom Gardner owns shares of Qualcomm. The Motley Fool owns shares of Ford and Qualcomm.

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