BlackBerry (TSX:BB) is among the most popular tech stocks on the TSX. Valued at a market cap of $3.5 billion, BlackBerry pivoted from manufacturing smartphones to providing enterprise-facing software solutions back in late 2016.
But the company has failed to turn around its business and continues to trail the broader markets by a wide margin. For instance, in the last five years, BB stock is down 55% while the TSX index has surged 44% in this period.
So, an investment of $1,000 in BlackBerry stock in August 2018 would be worth less than $500 today. But as past returns don’t matter much to current or future shareholders, let’s see if BlackBerry stock has the potential to deliver market-beating returns over the long term.
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Is BlackBerry stock a buy or a hold?
BlackBerry currently generates a majority of its sales from cybersecurity software, the Internet of Things, or IoT, software, and patent licensing fees. It gained traction in the cybersecurity space with the big-ticket acquisition of Cylance in 2019. Additionally, BlackBerry’s QNX vertical, an embedded operating system for connected cars and trucks, is a key driver of the IoT business.
In the fiscal first quarter (Q1) of 2024 (ended in May), BlackBerry reported sales of US$373 million, an increase of 122% compared to the year-ago period. But this growth might mislead investors, as BlackBerry sold off noncore assets bringing in US$218 million in sales in the May quarter. So, if we exclude licensing revenue, sales in Q1 were down 8% year over year.
Moreover, while the cybersecurity business has been expanding rapidly globally, BlackBerry has been wrestling with negative growth rates. For instance, cybersecurity revenue for BlackBerry fell 12% to US$418 million in fiscal 2023, compared to US$477 million in 2023.
While BlackBerry attributed the decline to macro headwinds and a slowdown in enterprise spending, its closest competitor CrowdStrike increased sales by 54% to US$2.24 billion in fiscal 2023 (ended in January). CrowdStrike further expects the top line to surge between 34% and 36% in fiscal 2024, while Wall Street forecasts sales to touch US$4.91 billion in fiscal 2026, indicating annual growth rates of 30% in the next three years.
What is the price prediction for BlackBerry stock?
BlackBerry has struggled to drive sales higher despite its focus on acquisitions. Its revenue has fallen from US$1 billion in fiscal 2020 to US$656 million in fiscal 2023. It also failed to deliver consistent profits and ended fiscal 2023 with an adjusted loss of $0.18 per share.
However, BlackBerry has focused on optimizing its cost base in recent months and is on track to improve adjusted earnings to $0.01 per share in fiscal 2024 and to $0.04 per share in 2025.
The company also forecasts total sales to increase at an annual growth rate of between 12% and 15% through fiscal 2025. While the cybersecurity business will grow between 9% and 12% annually, the IoT segment is forecast to expand between 18% and 22% in this period.
It seems that BlackBerry is relying heavily on the automotive market to drive sales and offset tepid growth in endpoint security, as it faces competition from peers such as CrowdStrike and SentinelOne.
Priced at four times forward sales, BB stock trades at a discount of 15%, given consensus price targets.
