Is BlackBerry Stock a Buy for June 2023?

Given its multiple growth drivers, I expect the uptrend in BlackBerry’s stock price to continue.

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After a challenging 2022, technology stocks are back in focus and are witnessing healthy buying this year amid the easing recession fear. Meanwhile, BlackBerry’s (TSX:BB) stock price has surged 61% this year, with a substantial percentage of the growth coming this month. However, it still trades over 80% lower than its 2021 high. So, let’s look at BlackBerry’s recent performances and growth prospects to assess the buying opportunities.

BlackBerry’s fourth-quarter performance

On March 31, BlackBerry reported its fourth-quarter earnings for fiscal 2023, which ended on February 28. For the quarter, the company’s revenue came in at US$151 million, representing an 18.4% decline from the previous year’s quarter. A substantial decrease in the revenue from its cybersecurity segment dragged its overall revenue down. The company’s management has blamed delays in closing large government deals for the decline. However, its IoT (Internet of Things) revenue grew by 1.9% amid new design wins and royalty backlogs.

The overall sales decline dragged its adjusted net income down from profits of US$6 million in the previous year’s quarter to a loss of $13 million. However, with cash, cash equivalents, and short-term and long-term investments of US$487 million, the company is well equipped to fund its growth initiatives. Now, let’s look at its growth prospects.

BlackBerry’s growth prospects

Despite the near-term volatility, BlackBerry’s long-term growth prospects look healthy, given its exposure to the high-growth IoT market. The company had 36 new design wins during the previous quarter, with six in the automotive sector and 30 in the general embedded market. The demand for the company’s products in ADAS (advanced driver-assistance systems) and digital cockpit domains is growing.

The demand for high-performance, safety-critical software in the medical and industrial sectors is also rising, benefiting the company. Also, BlackBerry’s IVY had its first design win, with Dongfeng Motor selecting PATEO digital cockpit for its next-gen electric vehicles. Given its multiple growth drivers and royalty backlogs, the company’s management expects its IoT revenue to grow at a CAGR of 18-22% through 2026.

Although its cybersecurity business unit is going through a challenging period, BlackBerry’s management hopes to grow its revenue at a CAGR of 9-12% over the next three years through innovative product launches, the renewal of large government deals, and expanding the addressable market.

Meanwhile, BlackBerry’s management expects its overall revenue to grow by 12-15% CAGR through 2026. Amid the top-line growth, its gross margins could improve by an average of 200 basis points per year. Further, the company hopes to substantially improve its adjusted EPS (earnings per share) and cash flows in fiscal 2024 while delivering positive adjusted EPS and cash flows in fiscal 2025. So, its growth prospects look healthy.

Investors’ takeaway

An independent research report published by McKinsey last month predicted that the convergence of cybersecurity and IoT could help in reaping the potential of a fully interconnected ecosystem. So, McKinsey believes BlackBerry, with its solid presence in both verticals, is well positioned to benefit from this convergence.

Given the favourable environment and its multiple-growth drivers, I expect the uptrend in BlackBerry’s stock price to continue, thus delivering superior returns in the long term. 

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 Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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