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Should You Buy BlackBerry (TSX:BB) at These Levels?

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Yesterday, reports emerged that Pomerantz LLP would investigate whether BlackBerry’s (TSX:BB)(NYSE:BB) officers and directors were involved in any securities fraud or other unlawful business practices on behalf of the company’s shareholders. The announcement and the weakness in the broader equity markets led the company’s stock price to fall 4.6%. After yesterday’s fall, the company is trading over 70% lower than its January highs. So, is BlackBerry looking attractive at these levels?

BlackBerry’s near-term weakness

Last month, BlackBerry had reported its fourth-quarter performance, which fell short of analysts’ expectations. The company’s management had blamed the ongoing patent licensing negotiations for lower-than-expected revenue. Further, the company’s net losses increased from US$130 million to US$315 million. Meanwhile, removing special items, the company’s adjusted EPS came in at $0.03 — a fall of 66.7% from $0.09 in the corresponding quarter of the previous year.

The weak fourth-quarter performance also weighed heavily on the company’s stock price. The steep fall in BlackBerry’s stock price has dragged its valuation to cheaper levels compared to its peers. Its price-to-book and forward price-to-sales multiples currently stand at 3.1 and 5.8, respectively. Despite the near-term weakness, the company’s long-term growth prospects look healthy. At the close of the February-ending quarter, the company’s cash and cash equivalents stood at US$804 million. So, the company is well positioned to fund its growth initiatives.

Long-term growth prospects

With increased remote working and learning, the demand for endpoint security and management is rising, which could benefit BlackBerry. With its innovative product offerings, BlackBerry is well positioned to capitalize on the expanding addressable market. It has already acquired many blue-chip clients, including governmental organizations. Further, BlackBerry has recently partnered with IBM to expand the reach of its Spark platform to organizations across Canada.

BlackBerry also has a significant presence in the automotive industry, with its software running in approximately 175 million cars. With the rising demand for advanced driver-assistance systems and data gateways, industry experts expect the number of embedded systems in cars to grow in the coming years, driving the market for the company’s products and services.

Amid the improving awareness over rising pollution levels, people are shifting to electric vehicles (EV). Deloitte projects the EV market to grow at a CAGR of above 29% over the next 10 years. Meanwhile, the company has strengthened its position in the EV markets through 23 design wins of the world’s top 25 EV OEMs, covering 68% of the global EV production.

Further, its recent partnership with Amazon Web Services and Baidu could be vital. Meanwhile, BlackBerry’s management has set an optimistic fiscal 2022 outlook, with its Cybersecurity and BTS verticals projected to deliver double-digit growth. With the company’s management still negotiating over its patent licensing, its licensing revenue could be on the lower side for the first two quarters of fiscal 2022. However, for fiscal 2022, the company expects to post a licensing revenue of approximately US$100 million.

Analysts’ recommendations and bottom line

Analysts look less bullish on BlackBerry. Of the nine analysts, four have given a “hold” rating, while the remaining five have issued a “sell” rating. The consensus price target stands at $7.42, representing a potential fall of 28.2%. However, given its multiple growth drivers and attractive valuation, I believe BlackBerry would deliver superior returns over the next two years.

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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. David Gardner owns shares of Amazon and Baidu. Tom Gardner owns shares of Baidu. The Motley Fool owns shares of and recommends Amazon and Baidu. 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.

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