BlackBerry Stock Has Risen 40% This Year: Too Late to Buy In?

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Many tech stocks have revived this year on expectations of an improving macro situation, particularly on the rate-hike front. TSX tech names have risen 25% this year, while one of the investor-favourite among them, BlackBerry (TSX:BB) has surged a decent 40% so far.

Should you buy BB stock?

The outperformance is quite noteworthy, but a major surge came last week when the company released an upbeat commentary. BlackBerry released its fiscal fourth-quarter (Q4) of 2023 results last week. The numbers once again highlighted a declining trend for BlackBerry.

However, the management’s commentary of turning cash flow positive in the next fiscal year cheered investors. BB stock surged 14.4% on the news on March 31. Note that the stock is still down 28% in the last 12 months and 60% in the last five years.

BlackBerry operates through three segments, Cybersecurity, IoT (Internet of Things), and Licensing. Almost 60% of its total revenues come from the Cybersecurity segment, while IoT generates around 35%.

Segmental earnings: Cybersecurity and IoT

BlackBerry’s top line has been on a consistent decline for the last few years, mainly due to a drop in its core cybersecurity business. In the latest reported quarter, revenues from the cybersecurity vertical came in at US$88 million, a drop of 28% year over year. On the margins front as well, the pressure from competition is quite visible and does not seem to go anywhere. Its gross margin in this vertical declined from 61% in fiscal Q4 2022 to 59% in Q4 2023.

The company successfully pivoted its business to cybersecurity when the last flourishing venture of smartphone making was shut. However, this could be a concern for its investors now with a constant revenue drop and margin squeeze.

The IoT segment remains the highlight, with soothing revenue growth and relatively stable margins. This segment reported 16% revenue growth year over year, despite cracks in the global automotive markets. Its gross margin for the quarter came in at 82% against 81% in Q4 2022.

BlackBerry QNX had a record last year for adding new royalty backlog of US$640 million. QNX is software for cars that facilitates a more personalized and interactive driving experience. Even though IoT is a relatively small part of the company’s revenues, it will likely be a big growth driver in the long term.

Guidance

During the earnings call, the company management offered a positive outlook, particularly for its IoT segment. It expects 20% revenue growth from this vertical in the next fiscal year, considering easing challenges in the auto market.

BlackBerry expects US$440 million in cyber revenues for fiscal 2024, indicating a 5% rise year over year. If the company indeed sees the guidance materialize, it could be a huge positive for the stock. The rising top line is the first thing investors want to see after years of decline. 

On a valuation front, BB stock is trading at a price-to-sales ratio of five its fiscal 2024 sales. The stock seems to have seen the bottom and could trade with a focus on the 2024 guidance. Short-term blips on the rate-hike front could fuel large swings in the stock. However, this seems to be the time to reconsider the stock for the long term.

The post BlackBerry Stock Has Risen 40% This Year: Too Late to Buy In? appeared first on The Motley Fool Canada.

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The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.