Buy BlackBerry Stock for its Massive Upside Potential

BlackBerry stock rallied 15% off better-than-expected earnings and a strong outlook for its business, as demand accelerates.

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One thing that has been made very clear over the last few years is that technology is increasingly driving improvements in many areas of business. BlackBerry (TSX:BB) is a Canadian tech company that’s establishing itself as a key provider in the embedded systems and cybersecurity industries. On Friday, BlackBerry’s stock price rallied over 15%, as the company reported better-than-expected earnings.

Here’s why you should consider buying BB stock today.

Growth is picking up steam

The fact is that BlackBerry stock holds a lot of promise. BlackBerry’s embedded systems business is all about machine-to-machine connectivity in the “internet of things” world. We see this demand for connectivity in many different industries, such as the medical industry and the industrial industry. But no other industry is as fast-growing and lucrative for embedded systems as the auto industry. Here’s where things get really interesting.

In fiscal 2023, BlackBerry’s auto software business (QNX) performed really well. For example, it was a record year for design wins, and the backlog hit a record high of $640 million. This makes sense, as BlackBerry’s software is firmly becoming a foundational software for the big auto companies such as Volvo, Volkswagen, and BMW.

This is driving a strong outlook for BlackBerry’s internet of things business. In fact, management’s guidance for this business is for revenue growth of 17-21% in the next fiscal year. This will be driven by BlackBerry’s strong position in the hearts and minds of auto manufacturers as well as their auto companies’ heavy investment in software-defined vehicles. Management expects design wins to continue strong in the year, as BlackBerry is currently winning up to 90% of the deals that it’s bidding for in this area.

BlackBerry aims for better profitability

Another important aspect of any business is, of course, profitability. While BlackBerry has excelled at the technology side of things, to date, it’s been a real struggle to make money off of it. Management seems intent on changing this sooner rather than later.

As a positive first indication, BlackBerry’s earnings loss of $0.02 per share in its latest quarter came in better than expected. Also, cash usage was down to $9 million in the quarter — much lower than prior quarters. Finally, Chief Executive Officer John Chen stated that the goal this coming year is profitable growth and positive free cash flow. It looks like the business is shifting, exiting the early stages of big losses and onto the next stage of greater revenue growth and profitability.

Similarly, analyst estimates are being ratcheted up, with fiscal 2025 showing a consensus earnings-per-share estimate of $0.02. In the meantime, BlackBerry remains armed with a low-debt, healthy balance sheet to see it through the coming years. In fact, its debt-to-market capitalization ratio stands at a healthy 23%, and its cash balance is currently $487 million.

Motley Fool: The bottom line

In closing, we are finally seeing the kind of revenue growth we knew was possible for BlackBerry. Yet the stock is still priced with a very negative perspective. If and when investors realize that BlackBerry’s revenue and earnings-growth potential is actually quite large, BlackBerry’s stock price will have massive upside. For now, BlackBerry stock remains an overlooked, undervalued gem.

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 Karen Thomas has a position in Blackberry. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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