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

Despite its near-term volatility, BlackBerry is an excellent buy for long-term investors.

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BlackBerry (TSX:BB)(NYSE:BB) had a very volatile year, as it was targeted by retail traders on social media platform Reddit. Due to its high short interest ratio, retail investors bought the stock to initiate a short squeeze causing a surge in its share price.

On June 3, the company’s stock price rose to a high of $24.35. However, since then, it has corrected around 39.7% but still trades 74% higher for this year. So, should you buy BlackBerry at these levels? Let’s first examine its recent performance and its growth prospects.

BlackBerry’s first-quarter performance

In the first quarter of fiscal 2022 that ended on May 31, BlackBerry’s revenue of $174 million beat analysts’ expectations while its adjusted loss per share of $0.05 was in line with expectations.

Meanwhile, year over year, the company’s top-line fell by 15.5% amid lower revenue from cybersecurity and licensing and others segments. However, its revenue from the IoT segment witnessed an impressive 48% growth, offsetting some of the losses.

Meanwhile, the company’s net losses came in at $62 million. However, removing special items, its adjusted losses per share stood at $0.05 per share, a significant decline compared to an EPS of $0.02 in the previous year’s quarter. Lower sales, decline in gross margin, and increased spending on research and development impacted its earnings.

Amid the weak first-quarter performance, the company has taken several growth initiatives to boost its growth. Besides, its financial position also looks healthy, with its cash and cash equivalents standing at $769 million as of May 31.

Growth initiatives

BlackBerry has classified its businesses into two units, Cybersecurity and IoT, to quickly meet the changing needs of the markets and become more focused and accountable. Despite the shortage of chips, the company’s IoT segment reported impressive growth last quarter.

Although the production-based royalties could continue to be under pressure in the near term, its revenue from design activities is going strong.

The company had 28 new design wins in the first quarter, with 17 in the automotive segment and 11 in the general embedded market (GEM). The company’s focus on the safety-critical system has delivered higher-value design wins while driving its royalty revenue backlog, which is encouraging. Besides, the software content per vehicle is rising as we move forward, which is beneficial to BlackBerry.

Along with these initiatives, the company’s recent partnerships with Amazon Web Services and Baidu could strengthen its position in the growing autonomous, connected electric vehicle market.

Now moving to the cybersecurity segment, the company recently introduced BlackBerry Optics 3.0 and BlackBerry Gateway. With the shift towards remote working and learning, the demand for cybersecurity is rising. So, BlackBerry is well-equipped to benefit from the rising demand for cybersecurity solutions.

Meanwhile, the company’s management expects its sales investments to take time to deliver desired results. So, the management slashed its revenue guidance and now expects its revenue from the cybersecurity segment to come closer to the lower end of the earlier announced guidance of the $495 – $515 million range.

Bottom line

I expect BlackBerry’s stock price to under pressure in the near term, given its timid first-quarter performance and concerns over speculative trading. However, its long-term growth prospects look healthy. So, investors with three years of investment horizon can buy the stock to earn superior returns.

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. The Motley Fool owns shares of and recommends Amazon and Baidu. The Motley Fool recommends BlackBerry and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned.

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