BlackBerry (TSX: BB)(NYSE: BB) makes a sound case for why it could be one of the cheapest (and most misunderstood) stocks on the TSX Index. The smartphone maker turned provider of enterprise software solutions (ESS) has been undergoing a lengthy and expensive transition that’s been painful for even the most patient of shareholders.
After the company pulled the curtain on results that saw three consecutive quarters of ESS numbers that missed the mark, it seems as though many are in the belief that the transformative efforts have failed after years under CEO John Chen. Add recent acquisitions that have introduced further integration complexities into the equation, and you’ve got a ridiculously volatile stock whose intrinsic value range is tough to gauge.
In a prior piece, I’d highlighted that the changes going on behind the scenes were making BlackBerry a hard business to understand with limited visibility and all its moving parts, making it tough for everyday retail investors to maintain patience and conviction in the company.
Warren Buffett says you should own businesses that lie within your circle of competence. As BlackBerry grows more complex, with setbacks, acquisitions, baggage, and all the sort, many investors are undoubtedly beginning to see the stock to wander outside of their circle.
Even for the extremely long-term thinkers, it’s tough to know if you’re wrong about BlackBerry until it’s too late. And with many years that have passed with nothing for investors to show, it’s understandable why many investors are looking elsewhere for growth.
If you’re an investor who’s willing to risk looking foolish (that’s a lower-case f) with an investment that could go nowhere for years, you may have an opportunity to pay a dime to get a dollar with the stock at current valuations.
BlackBerry’s recent slate of acquisitions, including Cylance, an AI-powered security player that could give the top line a nice boost, has made the turnaround story that much harder to understand, with some skeptics questioning if BlackBerry is capable of sustaining meaningful growth organically.
Cylance has been a bright spot on a rather dark story thus far. And although ESS numbers may continue to fluctuate over the intermediate term, I’d say there’s a bar low ahead of the company, opening a door for a potential for a big upside surprise should BlackBerry be able to get back on the right track.
BlackBerry is ridiculously volatile (with a 1.75 beta) with a lot of disgruntled investors that have already had the opportunity to throw in the towel. The stock trades at 1.16 times book and 3.4 sales, which is far too low for a company that’s slowly, but steadily on the path to becoming an established ESS player.
Management was quick to comfort investors after the last quarter was announced, and although you should take any such commentary with a fine grain of salt, I think investors ought to be giving their words more merit.
The BlackBerry ship isn’t sinking. It’s just navigating through some very rough waters, and those who don’t jump ship will be the ones that could reap massive rewards in 2020 and beyond.
Stay hungry. Stay Foolish.
