Despite macroeconomic worries, the S&P/TSX Composite Index has surged more than 20% over the last year. This market rally, even amid a shaky economic environment, is not only confusing investors but also making it difficult for them to find Canadian stocks that still look reasonably valued.
That’s why I think some of the more interesting opportunities may be hiding among companies that have recently moved in the opposite direction of the broader market. And BlackBerry (TSX: BB) is one of them. Its shares have fallen 21% over the last three months, yet the company’s financial growth and fundamental outlook remain solid. For someone looking to put $2,000 to work, that disconnect between its stock price and improving business performance is difficult to ignore.
Let me explain why BlackBerry’s recent pullback, improving profitability, and growing QNX business make it an undervalued Canadian stock worth considering on the TSX today.
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Why BlackBerry looks interesting now
With a remarkable history of reinvention, BlackBerry today looks very different from the smartphone company many investors still remember. Its business is now focused largely on its software businesses through its secure communications, QNX, and licensing segments. Notably, its QNX business mainly provides foundational software for automotive and other safety-critical systems.
Although BB stock has gained 79% over the last year, it has dived nearly 35% quarter-to-date and 21% over the last few months. As a result, it now trades at $11.57 per share with a market cap of $6.8 billion.
Despite that recent weakness, BlackBerry’s underlying business has been moving in a much more encouraging direction. While this alone doesn’t prove the stock is undervalued based on traditional valuation measures, the gap between its recent share-price performance and improving fundamental growth outlook is certainly worth watching.
Growth is showing up in the numbers
In the second quarter of its fiscal year 2027 (ended in August), the company’s revenue jumped 26% year-over-year (YoY) to US$163.3 million. Its adjusted gross margin also improved by three percentage points from a year ago to 78.2%.
Adding to the optimism, BlackBerry’s profitability is continuing to improve even faster. Last quarter, the company’s adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) surged 81% YoY to US$47 million, giving it a 29% adjusted EBITDA margin. Its operating income on a GAAP (generally accepted accounting principles) basis soared 192% YoY to US$33.6 million, while adjusted net profit climbed 79% to US$43.2 million.
Meanwhile, the Waterloo-based software firm is also seeing stronger cash generation. Its operating cash flow in the latest quarter strengthened to US$29.3 million from just US$3.4 million a year ago. This clearly shows that BlackBerry’s turnaround is beginning to translate into real cash generation, giving it more financial flexibility to invest in QNX and other growth initiatives.
QNX could drive the next chapter
For investors considering investing in BlackBerry today, the growth potential of the QNX platform could make the recent pullback in BB stock even more interesting. In the August quarter, the segment delivered record quarterly revenue of US$80.3 million, up 27% YoY. More importantly, QNX’s adjusted EBITDA also climbed 41% from a year ago, while its adjusted gross margin expanded by four percentage points to 87%.
And that’s not all. Coretura, the commercial vehicle joint venture between Volvo Group and Daimler Truck, selected Alloy Kore for its next-generation platform. BlackBerry calls it the largest design win in QNX history, adding more than US$100 million to its QNX royalty backlog.
Beyond automotive, QNX is also expanding into robotics, medical systems, industrial applications, and physical artificial intelligence (AI). To give you an idea, general embedded markets already account for around 20% of QNX revenue.
Taken together, stronger growth, rising profits, improving cash flow, and an expanding QNX outlook clearly make BlackBerry an attractive Canadian stock to consider with $2,000 after its recent pullback.
