The month of August might mean fairgrounds and amusement park rides to many, but for BlackBerry (TSX, NYSE:BB) shareholders, the last 12 or so months have been a true rollercoaster ride, most recently in the form of a 20 per cent drop in share price over the last week of June. The question investors have to ask themselves, says Kash Pashootan, is how real is the BlackBerry recovery?
Back in March when BlackBerry was reaching highs not seen in five years, CEO John Chen made the bold proclamation that his company’s transformation from handset maker to software and security peddler had reached its completion.
“We’re done with the turnaround,” said Chen. “We’ve got a really good business here.”
In June, the company’s fiscal Q1/19 financials included earnings and revenue beats as well as a significant uptick in revenue from recurring software and services. At the time, Chen pointed out that BlackBerry’s QNX software had now found a home in more than 120 million vehicles worldwide.
Yet investors seemingly focused on the negative, dumping the stock on the basis of a nine per cent year-over-year decline in total revenue and a 14 per cent drop in enterprise software and service business from the previous quarter.
The drop off is indicative of investor wariness, which would be right on point, says Pashootan, CEO and Chief Investment Officer at First Avenue Investment Counsel.
“It’s one of these businesses where, obviously, as a Canadian, we’re rooting for it and we want to see it turn around and do well,” Pashootan said in conversation with BNN Bloomberg. “It’s difficult for us to look at this name and be able to make any sort of meaningful decision based on fundamentals.”
“There’s a lot of change still happening and if you’re an investor in the name, you’re betting on that change. So, the question at this point is, what do feel the probability of this turnaround is,” says Pashootan.
After its late June drop off, BlackBerry has traded sideways for July. For the year, BB is now down 7.5 per cent.
“We do bet on turnarounds but they have to be much later stage in the turnaround,” says Pashootan. “A name like this, if you get it right, you can make a lot of money. If you get it wrong, you could lose a lot of money.”