BlackBerry stock is more of an option “than investment right now,” believes Sterne Agee CRT’s Rob Cihra. The analyst initiated coverage on the Canadian firm with a Neutral rating and a price target of $6.

BlackBerry Ltd And Its 'Leaps of Faith'

Three vectors of “opportunity/direction”

In the near term, Cihra said all the firms in the mobile and consumer technology space could face weaker demand for smartphones, PCs, tablets and TVs, especially in Europe and China. He also notes that BlackBerry is transforming its business and economic model to recurring software.

Presently, BlackBerry is a “shadow of its former self” in the smartphone segment and has been able to lower its costs for positive cash flow. Based on this approach, Cihra listed three “vectors of opportunity/direction” for the Canadian firm, noting that all these vectors would “still require investor leaps of faith.”

First is Enterprise Software, where the firm is working to replace monthly service fees from the BB subscribers with subscriptions from new value-added software/services. But Cihra sees it to be a challenge as the Canadian firm’s installed base is sharply “eroding so multi-OS is a necessity not feature.”

Second is Hardware. In FY16, the Canadian firm is expected to ship fewer than 4 million units of its proprietary hardware, a year over year decline of 46%. The constant decline in the number of shipments raises questions about whether or not the business is sustainable, “with device gross margins the ultimate hurdle, recently back into double-digit negatives again.”

Third is IoT, where Cihra believes the Canadian firm has done well by coming up with an IoT platform which will be using the QNX embedded software. However, initially revenue from the segment will be low, so investors may not pay much for it now.

Challenges ahead for BlackBerry

Credit Suisse analyst Kulbinder Garcha sees major challenges for the company in its services and hardware business. Garcha notes that if BlackBerry exits its hardware business by FY16 and services by 2017, then the Net Asset Value would be $3.2 billion or $6 per share. This suggests a downside of around 10% from the current market price. Credit Suisse has an Underperform rating on BlackBerry with a price target of $6.

On Tuesday, BlackBerry shares closed down 4.44% at $6.02. Year to date, the stock is down by over 45% while in the last year, shares are down 41%.