One of the most exciting Canadian stocks during the pandemic-driven euphoria of 2021, BlackBerry (TSX:BB) has since become a basement-dweller in terms of returns.
Looking at the chart above, it’s clear investors have soured on this name, which currently trades under $6 per share at the time of writing. Much of this has to do with the company’s forward earnings prospects, as well as its current valuation, which has come back into line with its historical norms.
Yes, the pandemic was a weird period of time, and those who cashed out made a killing. Let’s dive into whether this stock has the potential to regain those levels, or if that was just a flash in the pan.
Source: Getty Images
What’s driving the underperformance?
Some investors can certainly make the case that BlackBerry looks like an undervalued stock at current levels. And it’s worth noting that BlackBerry did have a run toward the $10 level earlier this year, so some may certainly ponder whether a doubling or tripling from here is possible.
I’d posit that BlackBerry and its management team will need to show significant operational improvements for this to be the case. In the company’s past quarter, revenue did beat guidance, with the company’s adjusted earnings before interest, taxes, depreciation, and amortization coming in at a positive $21.1 million. That said, a good chunk of this amount came from BlackBerry selling off its underperforming Cylance cybersecurity business for $80 million in cash.
Moving forward, questions remain around the company’s ability to monetize its core QNZ (embedded software) and secure communications businesses. While royalties continue to drive a big chunk of the company’s sales, it’s clear that those won’t be around forever, so there really are sustainability questions around this stock.
Where will BlackBerry head from here?
In my view, investors are probably correct in maintaining a relatively cautious stance when it comes to BlackBerry. The company’s guidance has come in as equally cautious this past quarter, with BlackBerry’s management team expecting to basically break even this year, with earnings growing to just $0.29 per share by fiscal 2030. That may not be good enough for most investors.
In my view, the highs we saw during the past meme cycle aren’t likely. This is a stock I think could be a buyout candidate for a larger tech company seeking a solid foothold in the embedded technology and communications security space. But beyond that, this is one I’m going to happily watch from the sidelines.
