BlackBerry deserves a second look, this fund manager says

Canadian tech company BlackBerry (BlackBerry Stock Quote, Chart, News TSX:BB) has had a rough ride over the past couple of years but now with the stock hitting five-year lows, the time might be right to take an interest in the name.

So says Alex Ruus of Arrow Capital Management, who argues that there’s value in BlackBerry’s business.

“It’s an interesting technology company in Canada. It has really changed. It’s really become a software company now as opposed to the iconic handset maker of ten years ago,” says Ruus, portfolio manager for Arrow Capital, speaking to BNN Bloomberg on Thursday.

BlackBerry’s share price has been sinking since early 2018, back when the company’s transformation into a software and security business seemed to be picking up steam. But the efforts with its QNX platform for connected and autonomous vehicles along with its major purchase last year of cybersecurity firm Cylance have both been slow to grow the company’s top line, leaving investors to doubt the timeline on the its turnaround.

BlackBerry last reported earnings in September where the company showed revenue up 22 per cent year-over-year to US$261 million, coupled with a net loss of US$44 million.

Analysts had been calling for revenue of US$266 million, with the market reacting to the miss along with management’s softer guidance concerning BB’s enterprise software and services business.

The result was a further plunge in share price to below $8.00, territory not seen since 2013 when BlackBerry was still reeling from the loss of its market share in the cellphone space.

But Ruus thinks that the stock deserves a second look now that it has drifted lower.

“At these levels, it’s starting to look interesting to me,” Ruus says. “I haven’t owned the stock for ten years. There was a lot of anticipation of success in the businesses that they’ve transitioned into, and I couldn’t get my head around how the valuation came to be.”

“They took a beating. Their growth was a little weak last quarter and the forecasts were weaker than people expected and so the stock started getting beat up,” he said.

“I think that this is one that you put on the radar screen as an interesting tech stock. It has potentially good long-term upside with their car operating system as well as their security software. I kind of like it here but I can’t say to buy it because I haven’t done enough work that I would buy it yet,” Ruus says.

BlackBerry took a hit earlier this month when it lost its president and chief operating officer who left to pursue other interests. Bryan Palma was hired only earlier this year to lead the company’s Internet of Things strategy which included its connected car business.

CEO John Chen has taken up the job as heading BlackBerry IoT Business. Currently, BlackBerry is down 24 per cent for 2019 and has been trading in the high-$6.00 to low-$7.00 range for the past two months.