Should You Buy BlackBerry Ltd. Ahead of Earnings?

BlackBerry Ltd.  (TSX:BB)(NASDAQ:BBRY) is expected to release Q2 earnings on September 28, and there are some good reasons why you may want to buy the stock before then.

Year to date, the share price has increased 22%, but in the past three months it has been on a decline of 19%, although it looks like the share price has found some stability and support at about $11 a share. You have to go back to April of this year for the last time the share price was consistently under $11.

In June, the share price reached $15, but a disappointing earnings result sent the stock plummeting. In its first quarter earnings, the company saw revenues drop over 41% from the previous year, and if it weren’t for a favourable settlement with Qualcomm, Inc., the company would not have been able to post a profit.

The company’s first quarter was not as awful as it seemed

A big reason for the decline in revenue for the quarter came as a result of decreasing handheld device sales and related operating system fees, which were down a combined $183 million in Q1. Excluding these segments, the company’s revenue for its technology and software-related segments was actually up over 12%.

As the company focuses more on software and technology services and gets away from its old business model, its product mix will change, which is what is happening. A year ago, handheld devices and operating system fees made up about 65% of revenue, and in the most recent quarter, those segments accounted for less than a third of total sales.

Focus on security could present opportunities for the company

BlackBerry won a bid earlier in the year to be the National Security Agency’s provider of encrypted tools, which will help the agency protect government devices, and that could be significant for many reasons. It’s almost a normal occurrence to hear about some hack or compromise of sensitive data these days, even where you would expect security to be airtight, like in a presidential election or with a credit reporting agency like Equifax Inc., where you would expect your information to be safe.

The more that companies get concerned with security, the more demand for services and devices related to it will climb. This is where BlackBerry can stand out from its competitors, and having a stamp of approval from the U.S. government will certainly validate the company’s credentials to potential customers.

Bottom line

BlackBerry has been struggling, but its position in the industry remains strong, and it could still have significant growth ahead of it. The company is still in a transition, and that makes it difficult to gauge how well the company is doing, and looking at just the top and bottom lines on the company’s financials will not provide you with a good assessment of whether the stock is a good buy or not.

In the tech industry, valuation multiples and principles take a backseat to revenue growth and potential, and BlackBerry’s new business model still needs to prove itself. However, the company’s ability to adapt and change is a strength that should not be overlooked.

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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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