Turnarounds are curious things. One the one hand, by definition they are damaged goods that Wall Street has all but abandoned. On the other hand, provided you are patient and do your homework, turnarounds can be some of the most rewarding plays in finance precisely because Wall Street has a difficult time thinking more than few quarters down the road.
Mobile phone maker BlackBerry ($BBRY) couldn’t be more of a turnaround if it tried. It’s actually one of the most spectacular implosions I’ve seen in 20+ years in this business. Companies rarely develop into turnarounds through no fault of their own; in this case, $BBRY didn’t innovate fast enough to stay ahead of Apple ($AAPL), plain and simple. The red ink has flowed profusely, management has been sacked, a slew of early save-the-firm product bets have fizzled, and most investors have abandoned the stock.
Yet within the wreckage of the original company are potentially the green shoots of a newer, leaner BlackBerry focused not on competing with the next wanna-be iPhone, but on servicing the company’s die-hard user base of government and corporate power users less interested in gimmicky apps and games than in security and battery life (and who, by the way, like the keyboard).
The company’s announcement this week that fiscal third-quarter revenue was $793 million disappointed Wall Street’s expectations, and the stock took another in a long line of beatings. But the stock is already pretty washed out, and contained in the release was the news that$BBRY generated positive free cash flow of $43 million and adjusted EPS of a penny. That, folks, is what turnaround investing is all about – a shattered company able to staunch the bleeding and generate cash on lower revenue while launching new products is usually one to watch. Time will tell, of course – the risk is that new products and legacy customers aren’t enough to generate consistent growth and, ultimately, consistent profitability. But it is a glimmer that suggests this firm might not be a complete write-off just yet.
BlackBerry has 21 active ratings on Vetr.com, with an average 12-month target of $12. That said, opinions on the platform are pretty split, with 57% bullish and 43% bearish. This is contrast to Wall Street’s lone buy rating among 37 analysts and a $9.70 average price target. If you’re a contrarian, the disparity speaks volumes.
2015 is undeniably a critical year for this once-loved high-flyer. What do you think? Is Blackberry the tech turnaround of next year, or it is one keystroke away from finally succumbing to the iPhone/Android onslaught? Make a rating!