The Motley Fool

BlackBerry (TSX:BB) Stock Doesn’t Get the Respect it Deserves!

Image source: Getty Images.

BlackBerry (TSX:BB)(NYSE:BB) is arguably one of the more misunderstood names on the TSX Index. The firm has endured a profound transformation over the years. With plenty of moving parts that have been further complicated by acquisitions, there’s no question that the company is tough for the average investor to value. The tech stock continues to make all the right moves, but there have been several stumbles on the way. That’s a huge reason why BlackBerry didn’t participate in the broader tech-driven relief rally out of March’s market lows.

BlackBerry’s end markets felt the force of the COVID-19 impact. To BlackBerry, the pandemic created considerable headwinds, unlike many other software companies that viewed the pandemic as a tailwind. With the auto industry on the mend, however, BlackBerry stock may finally be ripe for picking, as its QNX business looks to bounce back from a rocky first half of the year. Moreover, BlackBerry’s much-anticipated Spark suite and other non-QNX offerings could help give a lift to BB stock, as the work-from-home (or work-from-anywhere) theme continues through (and likely after) this pandemic.

A pretty solid quarter amid COVID headwinds

Recently, BlackBerry delivered a solid beat in its second fiscal quarter (Q2/2021), clocking in EPS numbers of $0.11, crushing the consensus estimate that called for $0.02. Licensing was a bright spot (up 52% year over year), but the software business remained under pressure thanks to pandemic disruptions. Revenues were clocked in at $259 million, up 6% on a year-over-year basis. The quarter was by no means perfect, as it failed to move the needle to the upside. But a beat is a beat.

With little in the way of forward-looking guidance, the bar appears to be set quite low for the firm, which could have a long way to go before it gets all its promising businesses moving in the right direction. While M&A activities have been encouraging, it seems as though many investors would rather wait for the firm to demonstrate that it can sustain meaningful organic growth. With headwinds weighing down BlackBerry shares, the stock seems untimely, especially to those who lack a full understanding of BlackBerry’s business, which can seem like a black box at times.

BlackBerry made a very sharp pivot from hardware to software. And although it’s been nearly six years since CEO John Chen, who has a reputation as a turnaround artist, took the helm, I think the firm requires even greater investor patience before the firm can finally yield meaningful fruit for investors.

Will the next five years be just as brutal for BlackBerry stock?

The past five years have been rough on BlackBerry shareholders. If you’re willing to hold for another five, I think the risk/reward trade-off is pretty attractive at today’s depressed valuations (BB stock trades at a mere 1.4 times book value).

I’m a believer in John Chen and think the firm needs another two years or so to prove that it’s worthy of substantial multiple expansion. You’ll want to be in the stock before it has the opportunity to do so, though, as BlackBerry shares could pop without a moment’s notice, especially with the low bar that’s set before it.

In the meantime, BlackBerry investors are going to need to exhibit patience, as the stock will likely remain very difficult to hold over the near to medium term. If you’re willing to take the short-term pain, I believe your chances at a long-term gain with the name are high.

Speaking of wonderful businesses, check out these picks curated by the team here at the Motley Fool Canada.

The 10 Best Stocks to Buy This Month

Renowned Canadian investor Iain Butler just named 10 stocks for Canadians to buy TODAY. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.
Because Motley Fool Canada is offering a full 65% off the list price of their top stock-picking service, plus a complete membership fee back guarantee on what you pay for the service. Simply click here to discover how you can take advantage of this.

Click Here to Learn More Today!

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 Joey Frenette has no position in any of the stocks mentioned. The Motley Fool recommends BlackBerry and BlackBerry.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.