BlackBerry (TSX:BB)(NYSE:BB) has taken its investors for a volatile ride this year. Although the rally began with the company announcing major updates, many experts believe that the retail traders on the social media platform Reddit fuelled the parabolic move, which drove the company’s stock price to a high of $36 on January 27. However, since then, the company’s stock has declined 58.9% to trade at $14.78. Despite the fall, the company still trades 75.1% higher for this year. So, should you buy the stock at these levels? Let’s first look at the company’s growth prospects.
BlackBerry’s growth prospects in the auto sector
BlackBerry’s QNX real-time operating system runs in over 175 million vehicles, with many blue-chip OEMs (original equipment manufacturers) being its clients. Meanwhile, the company has collaborated with Amazon Web Services to develop and market an intelligent vehicle data platform, IVY. Modern vehicles comprise a unique set of proprietary hardware and software components. These components produce data in a unique and specialized format, creating challenges for developers to bring new solutions quickly to the market.
Meanwhile, BlackBerry’s IVY platform hopes to address these challenges by applying machine learning to those data points to generate predictive insights and inferences, thus helping automakers monetize new in-vehicle applications quickly.
BlackBerry is also targeting the world’s largest EV market, China, by expanding its three-year-old partnership with Baidu. With the new agreement, Baidu’s high-definition maps will be allowed to run on BlackBerry’s QNX Neutrino real-time operating system, which would help Chinese auto manufacturers produce next-generation connected autonomous vehicles.
Other growth prospects
Apart from the auto sector, BlackBerry is strengthening its position in the cybersecurity and endpoint management market. Its recent launches Spark Suite and Cyber Suite platforms have received positive responses and helped acquire many blue-chip clients. With the world moving towards remote working and online shopping, the demand for the company’s services could only rise.
Further, the company announced that it had sold 90 smartphone technology patents to Huawei in December and has also settled its messaging patent litigation with Facebook.
Valuation and analysts’ recommendations
Amid the recent pullback in its stock price, BlackBerry valuation has fallen back to the attractive territory. Currently, the company trades at a forward price-to-sales and price-to-book multiples of 4.8 and 2.4, respectively.
Meanwhile, analysts look less optimistic about the company. Of the nine analysts covering BlackBerry, five have given a “hold” rating, while four analysts have issued a “sell” rating. The consensus price target stands at $4.86, representing a potential fall of over 67%.
On January 26, RBC Capital Markets had downgraded the stock from “sector perform” to “underperform” amid the surge in its stock price. As reported by BNN Bloomberg, Paul Treiber of RBC stated that its fundamental outlook remained the same, and the sale of its patents and improvement in the QNX division did not justify the surge in the company’s stock price.
BlackBerry has been expanding its customer base by introducing innovative products and services. It also earns a significant percentage of its revenue from recurring sources, which is encouraging. Meanwhile, the volatility in BlackBerry could continue for some days. However, investors with over three years of time frame could buy the stock for superior returns given its promising growth prospects and attractive valuation.
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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.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. 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 Amazon, Baidu, and Facebook. Tom Gardner owns shares of Baidu and Facebook. The Motley Fool owns shares of and recommends Amazon, Baidu, and Facebook. The Motley Fool recommends BlackBerry and BlackBerry and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned.