When struggling wireless firm BlackBerry (Nasdaq: BBRY) provided a quarterly update in late December, Merrill Lynch’s Tal Liani didn’t mince words: “Third-quarter results were abysmal, with hardware and services revenue continuing to decline at an alarming pace, and margins deep in negative territory,” he wrote. Shares, trading at $7.25 at the time, would soon fall to $6, he predicted.

Liani’s views were digested by the market, and then summarily ignored. BlackBerry has gone on to post one of the best returns of any tech stock over the past two months. If you bought this stock just ahead of that quarterly earnings release, you’d be sitting on a quick 60% gain.

 
With BlackBerry again set to deliver quarterly results at the end of this month, it’s fair to ask: Should you buy it?

Nothing to Sugarcoat
As Merrill’s Liani noted, Blackberry’s fiscal third quarter (ended November) was awful. Not only did all of the key financial metrics fall far short of consensus forecasts, but the company likely sold just 1.1 million BB10-based phones in the quarter. This is the company’s newest and most advanced operating system, which was released to considerable fanfare a few years ago. On all of its phones, BlackBerry generated a -31% gross margin in the last quarter.

#-ad_banner-#But some investors are looking ahead, focusing on a turnaround plan being pursued by new CEO John Chen. His goal: Stop the bleeding in hardware (by outsourcing production to China’s Foxconn) while committing resources to boost the software and services business.

Chen aims to radically shrink the company’s overhead to help reverse a recent history of massive losses. By the first quarter of fiscal 2015 (which began this week), the company aims to have shed nearly 50% of its operating costs, compared to peak levels. Chen thinks BlackBerry can get to cash flow break even in the current fiscal year that just began, and generate profits in fiscal 2016.

How will Chen rebuild the software and services business? “The company will increase its focus on regulated enterprises and government agencies first, where BlackBerry’s core competency in security is highly valued,” notes Goldman Sachs’ Simona Jankowski, who rates shares as “neutral” with a $7.80 price target.

A month after Chen announced his turnaround plan, he heard the unwelcome news that VMWare (NYSE: VMW) is spending $1.5 billion to acquire AirWatch. That lofty purchase price is justified by AirWatch’s fast-growing role as a provider of Mobile Enterprise Management (MEM). Companies and governments that wanted to make sure that sensitive data was sent over secure networks used to seek out BlackBerry’s respected proprietary network. AirWatch provides a similar level of security, with almost every kind of smartphone.

	Flickr/Janitors
	BlackBerry has gone on to post one of the best returns of any tech stock over the past two months.

UBS’s Amitabh Passi, who rate shares as “neutral” with an $8 price target, sees VMware’s purchase as a clear negative: “The competitive landscape in MEM has further intensified, making it even more challenging for BBRY as it now faces strong competitors in Citrix Systems (Nasdaq: CTXS), VMware, and IBM (NYSE: IBM), amongst others.” He adds ominously that “strategic acquirers in MEM continue to bypass BBRY.”

Notably, these three analysts predict that BlackBerry will continue to lose money in fiscal 2016 as well, despite Chen’s turnaround vision. They all applaud the company’s strategy, but fear that it is “too little too late” to get this ship turned around.

Short sellers also think this recent rally is unwarranted. The short interest stood at 94.5 million shares, as of Feb. 14, representing 19% of the float and making this the fifth most-heavily shorted stock on the Nasdaq.

To be sure, the Wall Street analysts and short sellers have thus far been flat wrong, at least by looking at the surging stock price. They are ignoring some clear positive that have also emerged in this story.

For example, now that BlackBerry is no longer on a fast path to bankruptcy (thanks to the cost-cutting and manufacturing outsourcing), enterprises aren’t as skittish about awarding big contracts to the company. In recent weeks, BlackBerry has begun to ink some impressive customers, such as Europe’s Daimler and Airbus.

Another positive: BlackBerry and Foxconn have jointly developed a low-cost smartphone (with the first one targeted at Indonesia). BlackBerry now has a solid chance of at least maintaining market share in many emerging markets. Still, this approach pales in comparison to Apple’s (Nasdaq: AAPL) high-end/high-margin approach to the market.

Lastly, BlackBerry is targeting the auto industry, recently displacing Microsoft (Nasdaq: MSFT) as a key supplier to Ford Motor (NYSE: F). The auto market is the next great frontier in wireless communications technology.

Back to the question, “should you buy it?” No, not yet. There are few things that BlackBerry can say in the upcoming conference call that can take shares even higher. Investors already anticipate a much better story around the expense structure. And there few reasons to expect sales to come in much above forecasts.

The better strategy: Study up on the company now, and carve out time to listen to the March 28 conference call. Wall Street analysts may again express their pessimism about this stock, which would put it under temporary pressure, which creates an opening for far-sighted investors that can find more positives in the conference call.

Perhaps the only reason to buy this stock now ahead of earnings is the possibility of a massive short squeeze, as we just saw with JC Penney (NYSE: JCP). If BlackBerry is able to announce a few more high-profile contracts in tandem with quarterly results, then shorts may have to run for cover.

Risks to Consider: The biggest risk here is the ongoing erosion in sales and open-ended losses. BlackBerry had $11 billion in sales in fiscal 2013, and that figure is expected to fall below $5 billion in the current fiscal year that just began. If the company can’t meet even those lowered forecasts, then shares may move to all-time lows, erasing all of the recent gains.

Action to Take –> BlackBerry’s obituary was clearly premature. Fresh management and bold action have bought time, and the company still has a strong legacy reputation in IT departments. But the recent share price gains appear to have anticipated a lot of good news to come, and it’s better to wait and seek a better entry point, or at least further confirmation that management can generate profits by fiscal 2016.

P.S. If BlackBerry’s potential has you excited, wait until you see what StreetAuthority’s Andy Obermueller has been working on. Andy has identified five “game-changing” trends with the potential to revolutionize the way we live our lives — and make early investors a killing. Among other things, these technological developments: robots that perform surgery with microscopic precision… machines that can “replicate” objects seemingly out of thin air… and a pair of technologies that will change the face of transportation forever. To learn more about these developing technologies — and the companies behind them — follow this link.