A slew of disappointing quarters and the lack of a visible growth runway for the company have caused havoc on BlackBerry (TSX:BB)(NYSE:BB) stock. Down more than 54% since January 2018 and down 32% in the last month, investors are left with the age-old question of whether this stock is a value trap on its way to oblivion or a value stock that is set to double your money.
Let’s analyse this, paying close attention to BlackBerry’s potential growth drivers, its financial strength, and its competitive position.
It’s all about cybersecurity
The new focus of BlackBerry is on fast-growing industries of the future, such as cybersecurity. BlackBerry has some good intellectual capital, patents, solutions, and systems that have garnered much positive feedback. BlackBerry has, in fact, been recognized by the Government of Canada as a benchmark for trusted technology, cementing the company’s reputation as an industry leader in security and privacy.
BlackBerry’s $1.4 billion acquisition of Cylance, a next-generation cybersecurity provider, currently represents 14% of revenue and is BlackBerry’s entrance to the cybersecurity industry. The potential in BlackBerry stock lies in the tremendous upside that exists in the cybersecurity industry as well as in BlackBerry’s growing expertise in this area.
Some estimates are calling for the cybersecurity market to exceed $300 billion by 2024, and while this is a very competitive space, BlackBerry is well positioned with its offering mostly through Cylance. A recent slowdown of growth is attributed to the fact that the company is in the midst of refreshing its product portfolio, and this slowdown in advance of the new product cycle should just be a blip for the company. Management has noted that its guidance for 25-30% year-over-year revenue growth at Cylance is achievable.
Licensing provides a growing backdrop of stability
Licensing revenue, which is recurring revenue, accounts for 29% of total revenue. In the latest quarter, licensing revenue increased almost 27%, and the company is still projecting fiscal 2020 revenue growth of 23-25%.
Given BlackBerry’s growing licensing revenue, its strong balance sheet, and its high-growth potential, the stock is trading at massively undervalued levels. BlackBerry stock trades just over its book value (1.1 times) and under three times sales. The company remains in a net cash position of $368 million as of the end of the most recent quarter (Q2 fiscal 2020) and is free cash flow positive. These are all strengths that not only provide a catalyst for the stock to go higher, but also provide a support that reduces the downside.
Foolish final thoughts
At the end of the day, BlackBerry is seeing strong revenue growth in its key businesses. Despite the struggles that the company has had in its transformation from a handheld device company to a software company, progress has been made, and strong, sustainable sales growth is right around the corner.
In conclusion, BlackBerry stock can double your money. The company is in the right businesses, has quality products, a strong reputation, and strong management, as well as a clear strategic financial plan forward.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Karen Thomas has no position in any of the stocks mentioned. BlackBerry is a recommendation of Stock Advisor Canada.