BlackBerry Limited’s (Quote, Chart TSX, NYSE:BB) CEO John Chen has received plenty of praise for successfully turning around the once-heralded mobile phone maker, but for all the accolades, investors should remind themselves that in terms of size and impact, BlackBerry is a much smaller company than it used to be.
Too small, in fact, to deserve the high multiples at which it’s been trading, says Michael Sprung, president of Sprung Investment Management.
“I think Mr. Chen has done a tremendous job of turning this company around, or at least halting the decline,” Sprung told BNN Bloomberg Wednesday. “It was fairly close to going under at one point a few years ago. Since he’s been on board, he’s successfully moved them away from the handset division which they were largely known for into more of a software company.”
“[But] this company is a long way from its glory days, and it’s trading at pretty high multiples, even after all the write-offs,” says Sprung. “At today’s prices it’s still trading at about 3x [book value].”
In 2017, BlackBerry was one of the minor darlings of the tech sector, as its shares doubled in value over a 12-month span. 2018 has proved to be a different story, however, as the stock is now down almost six per cent for the year. Even a better-than-expected earnings report for its fiscal first quarter 2019 in June was greeted with a ten-per-cent drop in share price.
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“We are off to a solid start in fiscal 2019,” said Chen, “with 14 per cent year-over-year growth in total software and services revenue driven by strong double-digit billings and an increase in recurring revenue. I am pleased that BlackBerry QNX software is now embedded in over 120 million automobiles worldwide, doubling the install base in the last three years. We are very excited about the opportunities ahead of us in automobiles and in other [Enterprise of Things] verticals.”
Sprung says much of BlackBerry’s value is a bet on future success, something that as a value investor he’s not interested in pursuing.
“It’s not likely to be earning much in the way of earnings for at least several years, and so, really, this is the sort of company that is more attractive to growth investors,” he says. “Where a company is in the sort of position that BlackBerry is in, it’s not the sort of thing that we’d be buying currently.”