During the last week of March, BlackBerry Ltd. (BBRY) announced its earnings report from the most recent quarter. While the company surprised market analysts with adjusted income per share of 4 cents, compared to a loss of 8 cents a year earlier, revenue continued to fall. After posting revenues of $976 million in the same quarter a year ago, it fell to just $660 million as BlackBerry sold only 1.6 million smartphones. 

Revenue Hits Bottom During Transition

The 1.6 million smartphones that BlackBerry managed to sell during the last quarter is a far cry from the 15 million it sold in the same quarter four years ago. The revenue is the lowest since 2006, before the smartphone revolution took place. When taking this into account with the improved performance of the income, it becomes clear that the company’s management team focused on securing the company’s financial viability. To do so, it controlled operating expenses and worked to eliminate its cash burn.

Now that it has turned around profitability, it can shift its attention to revenue stabilization. In order to do so, CEO John Chen will try to transition the company from a legacy model into an enterprise software model. The software division primarily consists of the BlackBerry Enterprise Server mobility management software and other products like the QNX embedded system and BlackBerry Messenger.

So far, the transition to software looks promising, as it has posted impressive growth over the last couple of quarters. Even though it only makes up roughly 7% of the company’s revenue so far, BlackBerry plans to more than double software sales from $250 million in fiscal year 2015 to around $600 million in fiscal year 2016. While sustaining such growth will be difficult, BlackBerry’s security is well regarded and the company does have quite the war chest to acquire companies to carry out this plan.

The hardware business will be able to keep the company afloat until the software business takes off, when the company will become consistently profitable in the long term. BlackBerry no longer builds its hardware in house, outsourcing it to Foxconn in order to reduce expenses. With the stock price so low, the management team is proving capable of taking steps to stop the bleeding, and with a plan going forward to bring revenues up, BlackBerry appears to be a good value investment looking to 2016.

Algorithmic Analysis

I Know First is a financial services firm that utilizes an advanced self-learning algorithm to analyze, model and predict the stock market. The algorithm produces a forecast with a signal and a predictability indicator. The signal is the number in the middle of the box. The predictability is the number at the bottom of the box. At the top, a specific asset is identified. This format is consistent across all predictions.

The signal represents the predicted movement direction or trend, and is not a percentage or specific target price. The signal strength indicates how much the current price deviates from what the system considers an equilibrium or “fair” price. The signal can have a positive (predicted increase) or negative (predicted decline) sign. The heat map is arranged according to the signal strength with strongest up signals at the top, while down signals are at the bottom. The table colors are indicative of the signal. Green corresponds to the positive signal and red indicates a negative signal. A deeper color means a stronger signal and a lighter color equals a weaker signal.

The predictability indicator measures the importance of the signal. The predictability is the historical correlation between the prediction and the actual market movement for that particular asset, which is recalculated daily. Theoretically the predictability ranges from minus one to plus one. The higher this number is the more predictable the particular asset is. If you compare predictability for different time ranges, you’ll find that the longer time ranges have higher predictability. This means that longer-range signals are more important and tend to be more accurate.

Figure 1. Algorithmic Analysis of BlackBerry.

Figure 1 includes the 3-month and 1-year forecasts for BlackBerry. The forecasts are both very bullish, especially in the 1-year time horizon. The algorithmic analysis is in agreement with the bullish fundamental forecast for the company, indicating that the stock price is currently undervalued. The timing also makes sense, as the revenue growth from the security business should start to grow at a rapid pace just before the end of the 1-year forecast, providing value to investors with the foresight to invest now.