From witnessing the colossal high of $241 to reeling around $8, BlackBerry (TSX:BB)(NYSE:BB) stocks have been through an incredible journey in the last 15 years. BlackBerry once shared the pie of smartphone sales with the likes of Samsung and Apple. Now, it has been forced to transform itself into a security software company.
I may have to write a book on the bizarre decision-making of the BlackBerry execs who decided to discontinue smartphone manufacturing. However, that’s not what I am here to discuss. I want to let you know that there are strong chances that the BlackBerry stock may come out of its long slumber this year.
There are three reasons why I think this could happen in 2020.
1) Security software earnings make for good cash flow
When BlackBerry decided to venture into the security software landscape, many experts criticized the company for going so niche-specific. But, despite all that has happened in the last decade, BlackBerry has at least succeeded in establishing a good cash flow regimen.
It is still not on par with what BlackBerry used to churn in its heydays, but it is steadily growing. The sales generated through security software have a high profit margin. Moreover, profits are recurring. This is where a service-based business triumphs over product manufacturers.
This high margin and the recurring nature of profits somewhat justifies BlackBerry’s decision.
2) BlackBerry’s target market is poised to fly high
Security software is gradually becoming a staple for every industry as automation, and the Internet of Things (IoT) is prevailing in every sector. From homes to cars, everything will require security software in the next five to ten years.
In short, unlike the oil industry, the target market of BlackBerry will only expand and grow from now on. The bigger the market, the higher the sales, and you know the rest of the equation.
3) BlackBerry enjoys a good security reputation
Do you remember when you and I had already switched to the better technology and user interfaces of Android and iOS phones, but politicians, business people, and celebrities were still using BlackBerry phones? The reason all those people were sticking to BlackBerry was its higher-grade security features.
BlackBerry still enjoys that good reputation, and this is the reason why it will remain ahead of its lesser-known competitions when software security becomes the more pressing issue in every consumer sector.
Be careful when investing
I am not saying that investing in BlackBerry stock makes for immediate gains. Moreover, it could be an overpriced buy. Even when BlackBerry is rallying way behind the competitors, its shares are trading at 44 times forward earnings.
The stock has not experienced a steep slump or high in the last 5 to 6 years. Its price remains in the $7 to $12 range. So, you will want to hedge your bets even if you don’t want to keep it for long.
The service-based business model of BlackBerry is finally taking shape. With cybersecurity only getting more important with time, we may see BlackBerry stock set on a slow and steady upward trajectory.
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Fool contributor Jason Hoang owns shares of BlackBerry. The Motley Fool recommends BlackBerry.
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