There’s actually reason to believe this stock will rise in the near future. Several catalysts are lining up right now.
The timing is right
Software is king. It has superior economics than hardware, and can scale thousands of times faster. If you want to make a ton of money quickly, software stocks should top your buy list.
But what does software have to do with BlackBerry? Doesn’t the company make old-fashioned smartphones?
Many are surprised to learn that BlackBerry no longer makes smartphones. The company just finalized a three-year turnaround completely focused on cybersecurity software. When it comes to software, this market is especially lucrative.
Every day, the world adds millions of new endpoints to the internet. New phones, smart watches, computers, tablets, washing machines, vehicles, tracking devices, and more. All of these products are vulnerable to hacking.
Hacking can be annoying and expensive to remedy, but it can also be deadly. Consider a connected car, like one with automated lane assist. If this software were hijacked, the results could be catastrophic. The downside grows even further with self-driving vehicles.
Manufacturers and consumers already shell out hundreds of billions of dollars per year to protect endpoints, but the market is expected to grow consistently over the next decade beyond. BlackBerry is in position to capitalize.
This isn’t an early-stage play. The company already has amazing tech, like its Cylance division, which uses AI to detect threats before they’re executed. Its QNX platform uses Cylance to protect autonomous vehicles. That platform is already embedded in nearly 200 million vehicles worldwide.
Bet on BlackBerry
Cybersecurity software stocks have already taken off. Just look at Crowdstrike Holdings, which trades at 44 times earnings. The industry will grow rapidly for years to come, and the market knows it.
BlackBerry is a notable exception. Shares 2.7 times sales, roughly 10 times less than the industry overall. A simple reversion to the industry mean would result in big upside.
What’s preventing BlackBerry stock from taking off? Much it has to do with perception. Many people still classify this stock as a hardware manufacturer. That misconception prevents the valuation multiple from matching its peers.
The other issue is that the company just finalized its turnaround. For years, revenue was in secular decline. The market is clearly in “prove it” mode, waiting for organic growth to return before pumping the stock.
It appears that milestone has just been reached. Last week, the stock popped 10% after Q2 results came in surprisingly bullish. Total revenue grew 2%, with recurring software sales comprising 90% of sales.
“We are pleased to report sequential and year-over-year revenue growth this quarter, exceeding expectations,” said BlackBerry CEO John Chen. “Continued QNX design wins and significant cybersecurity partnerships position the business strongly for the future.”
The market was waiting for a signal to buy BlackBerry stock. October could be the exciting month investors were waiting for.
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.
Tom Gardner owns shares of CrowdStrike Holdings, Inc. The Motley Fool owns shares of and recommends CrowdStrike Holdings, Inc. The Motley Fool recommends BlackBerry and BlackBerry. Fool contributor Ryan Vanzo has no position in any stocks mentioned.