While there has been a lot of talk about this company’s insane turnaround from the days of BBM — when a BlackBerry phone wasn’t just popular; the stock was, too — it still has a long way to go.
For those unaware of this company’s phoenix-like rise from the ashes, after the stock reached $137 per share back in 2008, shares plummeted, reaching the lowest point of about $7.50 back in 2012 and frankly not moving too far from that number — until recently.
While the company has remained on a bit of an up-and-down curve, recently the stock is up, and many analysts believe it could remain that way, with only one slight drop in its future.
That’s due to BlackBerry’s shift in focus away from phones and towards enterprise software. BlackBerry eventually put an end to its struggles of trying to make its smartphone business happen. Those days are finally over. Over the past decade, the company has been acquiring and re-allocating resources to become part of the fast-growing space of enterprise mobility management. This space has also proven to produce higher margins for other companies, making revenue look like a real possibility.
In fact, one area where BlackBerry has already excelled is in the area of cybersecurity, acquiring Cylance earlier this year for $1.4 billion. This boosted the company’s capability to utilize artificial intelligence and cybersecurity together — areas where the company will now focus include the healthcare industry, a far cry from pushing out phones and hoping they end up on Keeping Up With the Kardashians. The company has used its knowledge of cybersecurity, of which it has plenty given its history, to focus on this new path of revenue success.
Another area that’s in its early stages are BlackBerry’s research and development of autonomous vehicles. With a government grant to get it started in Ottawa, the company is now looking for contracts with the U.S. government and American car makers.
While a profit still remains to be seen, the company is on its way towards one. Last quarter, its software and services revenue grew to $250 million, but that was after a one-year past earnings-growth rate of negative 77%. However, there has been a positive five-year average past earnings growth of 68.7%, which is solid overall.
The main item keeping the stock down is, all this investment costs money, and when the stocks isn’t putting money towards investment, it puts it towards its debt, which has been slowly going down. In the last five years, it’s decreased its debt to net worth from about 45% to about 25%. On top of this, its P/E is much too high at 53.6, and with no dividend, it’s hardly all that enticing to new investors.
But here’s the thing: this is the short term. I want to look at the long term.
Sure, right now this stock remains risky. But there is a high reward for investors in BlackBerry. This company has shifted focus to an area it recognizes and it’s good at and has already seen an increase in revenue to support that. While profit is in the future, it’s not in the very distant future.
When that happens, this stock should soar — maybe not to $135 per share overnight, but certainly much higher than its current share price of $12.22 at the time of writing. The demand for Internet of Things technology is real, especially security, and CEO John Chen has bet on this.
If you were to buy now at this share price right now, most analysts would say that you’re paying a fair price, and not that its stock is overvalued. In fact, the stock has been steadily increasing since the beginning of this year, and it’s not all that likely it will go down again. Though if it does, it won’t be by much. So, if you’re looking to get in at the ground floor, BlackBerry is a good bet that if this decade was one of investment, the next should be a decade of soaring shares.
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Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool owns shares of BlackBerry. BlackBerry is a recommendation of Stock Advisor Canada.