Blackberry Ltd. (TSX: BB) reported its second-quarter fiscal 2027 results last week. These results were better-than-expected and they highlighted the momentum that Blackberry is experiencing in its QNX business. As a result, I’m currently considering adding to my position in Blackberry (BB) stock. Wouldn’t it be great to load up on the next stock to soar through the stratosphere?
While there are always risks that come with owning a high growth/high potential stock like Blackberry stock, the risk/reward relationship is quite favourable. Please read on as I demonstrate this.
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Strong results driven by QNX
Blackberry’s QNX segment is home to its high-performance software at the heart of connected devices. This “intelligent” software connects automotive devices, medical devices, robotics, and so much more. It’s truly a game-changer in every industry that it touches. And, it continues to gain momentum.
In Blackberry stock’s recent results, its QNX segment reported record revenues of $80 million, which was 27% higher than last year. Design wins also hit a record, and license activity, which is a leading indicator of design wins, was extremely healthy.
All of this drove significant operating leverage, which was apparent in Blackberry’s profitability and margin performance. For example, QNX’s gross margins were 87%, the highest ever. Also, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 41% to $29 million (36% margin).
Total company Q2 results for Blackberry stock included an earnings per share (EPS) result of $0.07. This came in above expectations that were calling for EPS of $0.04. And it was 75% higher than the same period last year.
Blackberry raises guidance
As a result of this strong performance in the quarter as well as the first half of the year, Blackberry increased its guidance. The bottom line is that Blackberry now expects fiscal 2027 adjusted EPS to come in between $0.19 and $0.22. This is up from prior guidance of between $0.16 to $0.20.
Longer-term, the upside that exists with Blackberry is becoming increasingly clear. The connected car market alone is massive, and it’s being supported by the auto industry’s transition to software-defined vehicles.
According to Blackberry’s management, 90 million vehicles are produced every year globally. One third of them have the type of high-performance centralized compute architecture in which QNX capabilities are relevant. This segment could expand to roughly three-quarters of the auto market over the next five years. This means that Blackberry’s addressable market could very conceivably double.
So given Blackberry’s current estimates, Blackberry’s (BB) stock price currently trades at roughly 40 times this year’s expected earnings. For a growth stock with as much growth potential as BlackBerry is showing, this is very reasonable. Estimates have significant upside potential, as do Blackberry’s market and growth opportunities.
The bottom line
Better-than expected results and increased guidance bode very well for Blackberry the company and Blackberry’s (BB) stock price. But, all of this momentum and potential growth mean little if a company does not have the financial resources to fund it. Thankfully, Blackberry stock ranks well on this front as well.
Blackberry stock’s balance sheet is strong – its $447 million in cash is supported by its strong cash flow growth. In the first half of fiscal 2027, Blackberry stock’s operating cash flow came in at $34 million. This was above guidance and it compared to cash usage of $40 million in the same period last year. The capital intensity of the business is low, translating into free cash flow of $30 million for the first half of the year.
