Tech stocks have gone on an incredible run in recent years. Consider Shopify. Since it IPO’d in 2015, shares have risen by more than 1,000%! Shopify isn’t alone, either. From Facebook and Netflix to Constellation Software and salesforce.com, doubling and tripling in price is seemingly all tech stocks do.
The critical thing, however, is to catch these stocks early. Square is a perfect example. After debuting at $13 in late 2015, the stock soared to $60 by mid-2018. Over the past 18 months, however, shares have traded sideways. The company is still growing rapidly, but the valuation hasn’t offered much room for upside considering the growth story is already well known and appreciated by the market.
No one is looking
Believe it or not, before all of the tech stocks listed above achieved their rapid growth, many analysts and investors weren’t excited about the prospects. Facebook is a textbook example.
Facebook IPO’d in May of 2012. It was one of the largest IPOs in tech history given the peak valuation was around $100 billion. Yet soon after shares began trading, they fell by more than 50%. It took a year for the company to regain its footing.
The biggest concern at the time surrounded the shift from desktop to mobile ad revenue. Many top-tier analysts simply believed this new revenue source wouldn’t be as profitable. Today, we know better. After shares bottomed in 2012, they went on to return more than 1,000%.
What’s the lesson here? Investing in high-return tech stocks isn’t always obvious beforehand. In fact, many of these companies are roiled in controversy before they go on their amazing runs.
If you want big gains, you need to wade into the controversy, betting on hyper growth before it occurs. This is what makes BlackBerry stock so compelling. Most investors still view it as a smartphone manufacturer, when in reality, it no longer even produces smartphones. Next year, the story is about the change permanently, even if the market doesn’t expect it.
Making its stand
If BlackBerry doesn’t manufacture its iconic smartphones anymore, what does it do? It’s under the radar, but the company is actually involved in next-gen technologies like autonomous vehicles, big data, and the Internet of Things.
Even as BlackBerry faded from the smartphone industry in 2012, it was still beloved by corporations and politicians. That’s because where it lacked in user satisfaction, it made up with world-class security. Organizations and individuals that valued security above all else continued to choose BlackBerry. Over the last few years, the company has gone all-in on its security reputation.
Through 2030, tens of billions of new devices will become connected to the internet. It’ll be amazing to zip around in a self-driving car and to be able to control your washing machine from your smartphone, but these perks comes with real risks. Anything connected to the internet can be hacked. That can have devastating impacts.
To prevent these vulnerabilities, BlackBerry has created a security software suite that shields every device with end-to-end protection. In fact, its Cylance division is able to use artificial intelligence to prevent attacks before they even happen. Hundreds of companies already rely on BlackBerry’s software suite, including most major car manufacturers. As these next-gen technologies go exponential, BlackBerry will be there to line its pockets.
BlackBerry stock is now priced at just 2.8 times forward sales. Other security software companies, like Crowdstrike Holdings and Zscaler, trade at five times to 10 times premiums. If BlackBerry can prove it’s on the same track next year, the upside could be enormous.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. David Gardner owns shares of Facebook and Netflix. Tom Gardner owns shares of Facebook, Netflix, Salesforce.com, Shopify, and Zscaler, Inc. The Motley Fool owns shares of and recommends BlackBerry, Constellation Software, Facebook, Netflix, Salesforce.com, Shopify, Shopify, and Zscaler, Inc. The Motley Fool owns shares of CrowdStrike Holdings, Inc. The Motley Fool recommends BlackBerry. Fool contributor Ryan Vanzo has no position in any stocks mentioned.