While the TSX index is trading near record highs, shares of BlackBerry (TSX: BB) and Bombardier (TSX: BBD.B) have trailed the broader markets by a wide margin. Over the years, the two beaten-down TSX stocks have wrestled with narrowing sales and profit margins, forcing them to exit multiple business segments and focus on streamlining operations.
So, let’s see which TSX stock is a better buy right now, given their depressed valuation.
Is Bombardier stock a good buy right now?
Valued at $7 billion by market cap, Bombardier stock has more than tripled investors returns in the last three years. Despite these outsized gains, BBD stock trades 89% below all-time highs.
In the first quarter (Q1) of 2024, Bombardier reported revenue of $1.3 billion, an increase of 13% year over year as it delivered 20 aircraft. The company expects to deliver between 150 and 155 aircraft by the end of 2024. Bombardier sold 60% more jets in Q1 compared to the year-ago period, ending the quarter with a backlog of $14.9 billion.
Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) was $205 million, indicating a margin of 16%, while adjusted earnings per share stood at $0.36 in the March quarter.
The Canadian manufacturer is focused on growing recurring income streams and backlog while reducing balance sheet debt. Bombardier expects to end 2025 with revenue of $9 billion, adjusted EBITDA of $1.625 billion, and a free cash flow of $900 million. A positive free cash flow will allow Bombardier to reinvest in growth projects and lower debt levels, driving future cash flows higher.
Bombardier’s Services business has increased revenue by 77% since 2020 due to the expansion of its service center network and enhanced customer support offerings. With a rapidly growing fleet of aircraft in service, Bombardier is ahead of its plan to grow service revenue to $2 billion by 2025.
The company is also eying growth in the pre-owned market, which might help it increase annual sales by $1 billion by 2030.
Priced at 12.5 times forward earnings, BBD stock is quite cheap, given earnings are forecast to rise by 80% in the next two years.
Is BlackBerry stock undervalued?
In fiscal 2024, BlackBerry reported revenue of US$853 million, of which US$218 million was associated with the sale of its legacy patent portfolio. It now expects revenue to range between US$589 million and US$616 million in fiscal 2025.
BlackBerry ended fiscal Q4 of 2024 with revenue of $173 million, as IoT (Internet of Things) sales were up 25% to $66 million. Comparatively, cybersecurity sales rose 5% to $92 million, indicating the company continues to lose market share in this rapidly expanding market.
While growth rates for cybersecurity companies have decelerated in recent quarters, peers such as CrowdStrike and Palo Alto Networks continue to grow sales by double-digit percentages year over year amid a challenging macro environment.
Moreover, BlackBerry is forecast to report an adjusted loss of $0.05 per share in fiscal 2025, compared to earnings of $0.07 per share in 2024. Investing in a tech stock that is unable to grow its sales or earnings consistently is a high-risk strategy, given there are many other companies you can buy that enjoy better financials.
The Foolish takeaway
Bombardier seems to be a much better investment today, given its improving financials, revenue visibility, and earnings expansion. However, BlackBerry continues to wrestle with competition from established players and a volatile earnings base.
