Blackberry Limited (NYSE:BB), the Canadian IoT (Internet of Things) software and security company, has seen its stock tumble over the past month by about 10% or so. Moreover, BB stock is down from its recent closing peak of $15.88 on June 3 to $10.29 as of Aug. 6. That represents a drop of over 35% in a little over two months.

This drop is likely due to the company’s recent release of its earnings, as well as the company’s guidance for 2021. As a result, I am not as sanguine about the prospects for the company as I have been in the past.

What Happened With Blackberry

What likely happened is that investors and the market were not impressed with the June 24 release of the company’s fiscal Q1 earnings. Blackberry’s sales were $174 million in Q1, or 17.1% below the year-ago quarterly sales of $210 million.

That is not good, since most companies usually report higher sales. This effectively lowered analysts’ outlook for the company. Moreover, its gross margin fell from 72.4% last quarter to 65.5% for the quarter ending May.

However, although net income was still negative in its fiscal Q1, it was not as great a loss as last year. The company lost $62 million vs. losing $315 million a year ago. The loss per share improved to negative 11 cents from negative 56 cents in Q1 2020.

As for guidance, the company said that it kept its revenue outlook the same as before. That was no surprise. Analysts now believe that sales will actually fall to $781.6 million for the year ending February 2022. This is not good, since it represents a drop of 9.2% from the $861 million in sales from the trailing 12 months. Moreover, it is 24.9% below the $1.04 billion in sales for the year ending Feb. 2020.

You simply can’t expect your stock to rise if sales keep falling. For example, analysts foresee sales for the year ending February 2023 to rise to just $954 million. That is still below the sales for the year ending February 2020, and only 10.8% higher than the year ending February 2021. That is very paltry growth.

The decline in sales came in both its cybersecurity and licensing divisions. For example, cybersecurity sales fell from $119 million last year to $107 million for the quarter ending May 31, 2021. Moreover, its licensing sales, typically volatile, dropped to $24 million from $58 million last year. The only growth was in the IoT division which boosted sales to $43 million from $29 million.

Where This Leaves BB Stock

The problem now is that analysts do not have a lot of faith in the company’s ability to grow going forward. Its largest division, Cybersecurity, is not moving forward with higher sales.

Moreover, it is now more difficult to forecast operating profits and free cash flow (FCF). My previous view that the company could make positive FCF for this year is no longer valid. I have had to change my attitude about BB stock as well.

For example, I now think that FCF profits won’t occur until the year ending February 2023. Whereas in the past I assumed a huge 23.33% FCF margin in my assessment of BB stock, I know that the margin will only be 10% of revenue.

That means that forecast sales of $954 million for the year ending February 2023 will produce just $95.4 million in FCF profits. Using a 1.5% FCF yield implies that its valuation should be $6.36 billion (i.e., $95.4 million/0.015), but using a 2% FCF yield results in a target value of $4.77 billion.

The average of these two is $5.565 billion. That is actually 5% below its present market capitalization of $5.86 billion (according to Yahoo! Finance, which typically has the most accurate valuations). In other words, BB stock is now about at a full valuation.

Don’t expect BB stock to rise unless Blackberry can show in its upcoming Q2 earnings that the company has returned to a growth trajectory in three of its business lines.

On the date of publication, Mark R. Hake did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.