Despite being a victim of the recent selloff in growth stocks, BlackBerry (TSX:BB) has still outperformed the broader market on a year-to-date basis. While BB stock has seen 31% value erosion in the last month, it still currently trades with 11% gains in 2023 at $4.89 per share and a market cap of $2.9 billion. By comparison, the TSX Composite benchmark has risen 1.4% this year.
In my opinion, these declines make BlackBerry stock look undervalued, as it has the potential to yield outstanding returns in the long term. To support my argument, let me quickly highlight some major recent fundamental developments here.
BlackBerry’s growing dominance in enterprise cybersecurity
BlackBerry generates most of its revenue from its cybersecurity segment. Even as the contribution of its IoT (Internet of Things) segment in its revenue is gradually growing, the cybersecurity segment still accounted for nearly 64% of its total revenue for its financial year 2023 (ended in February).
As cyber threats are becoming a big challenge for public and private organizations across the world, the need for innovative cybersecurity solutions is also growing at a fast pace. To provide its customers with better protection against data theft and other cyber threats, BlackBerry is focusing on developing artificial intelligence (AI)-powered cybersecurity solutions.
Less than five years ago, BlackBerry acquired an American software firm, Cylance, with an aim to add premier AI and cybersecurity capabilities to its offerings. In August 2003, the company enhanced the cyberattacks predicting capabilities of its patented Cylance AI engine in a major update for proactive cyber defence.
The demand for such advanced cybersecurity solutions is expected to increase significantly in the coming years due to growing cyber threats amid the ongoing global digital transformation. That’s why, despite ongoing weakness in its cybersecurity business, the segment’s long-term growth outlook remains strong.
Advanced tech solutions for the automotive industry
Besides its cybersecurity business, BlackBerry’s increased focus on developing advanced technological solutions for futuristic mobility can give a big boost to its financial growth in the years to come.
BlackBerry already has a strong presence in the automotive technology sector, with its QNX operating system being used by several large global automakers in their vehicles. Less than three years ago, the company started developing an intelligent vehicle data platform, BlackBerry IVY, in collaboration with Amazon Web Services. The AI and machine learning-powered IVY platform is capable of allowing carmakers to collect in-vehicle sensor data in real time and provide better features and functionalities to their customers.
Such advanced vehicle data platforms are likely to play a critical role in enhancing in-vehicle experience and road safety in the future, especially with the surging demand for autonomous vehicles and smart mobility solutions.
Where will BB stock be after five years?
A stock’s future performance depends on several factors, including its fundamental outlook and macroeconomic environment. That’s why it’s nearly impossible for anyone to predict where exactly BlackBerry stock will be five years from now. That said, while the ongoing macroeconomic issues might keep BB stock volatile in the short term, I expect its improving fundamentals to help it at least double in value in the next five years.
BlackBerry stock: An important development
Note that, in the first week of October, BlackBerry announced its intention to split its cybersecurity and IoT segments into two separate business entities. The company plans to pursue a subsidiary initial public offering for its IoT unit, with a targeted launch in the first half of its fiscal year 2025 (which will start in March 2024).
While more details about this decision’s impact on BB’s existing common shareholders’ holdings are still awaited, you can consider buying BlackBerry stock at current levels to take advantage of the recent dip as the long-term fundamental outlook for both of its business segments, as discussed above, looks impressive.
