Blackberry Limited (BB) leverages artificial intelligence (AI) and machine learning to deliver solutions to enterprises and governments in the areas of cybersecurity and data privacy. It also offers endpoint security management, encryption, and embedded systems. The company operates through three segments, including BlackBerry Spark; BlackBerry IoT Solutions; and BlackBerry IP Licensing.

Just over a year ago, BB’s stock was heavily influenced by meme mania. Retail investors got together on social media forums, such as Reddit’s WallStreetBets, to bet against the stock, resulting in short-squeeze rallies. Shares of BB reached as high as $28.77 per share on January 25, 2021, from a single digit within a short period.

However, the stock lost significant value after hitting its highs and is currently trading at $4.40. It has declined 53.7% year-to-date and 62% over the past year. BB is currently trading 64.5% below its 52-week high of $12.39, which it hit on November 3, 2021.

The company’s revenue has declined over the past years since it shifted its focus from making phones to cybersecurity and software. The company’s revenue declined at a CAGR of 10.2% over the past three years.

Also, the current environment of persistently high inflation and rising interest rates is making the survival of fundamentally weak, unprofitable companies difficult. Many companies struggle to sustain their operations due to funding drought with increasing borrowing costs.

Here is what I think could influence BB’s performance in the upcoming months:

Deteriorating Financials

BB’s revenue declined 4% year-over-year to $168 million for the fiscal 2023 second quarter ended August 31, 2022. Its operating expenses were $153 million. The company’s operating and net losses came in at $47 million and $54 million, respectively. Also, its net loss per share amounted to $0.10 for the quarter.

Weak Growth Prospects

Analysts expect BB’s revenues to decline 8.6% year-over-year to $168.14 million in the fiscal 2023 third quarter (ending November 2022). The company’s loss per share for the same quarter is expected to come in at $0.07. In addition, the company has failed to surpass the consensus EPS estimates in each of the trailing four quarters.

Furthermore, the company’s consensus revenue estimate of $687.14 million for the current fiscal year (ending February 2023) indicates a 4.3% year-over-year decline. Analysts expect its loss per share for the current year to widen 120.5% year-over-year to $0.22. Also, the company’s loss per share for the next year is expected to come in at $0.17.

Poor Profitability

BB’s trailing-12-month EBIT and EBITDA margin of negative 30.35% and 11.06% compare to the industry averages of 7.07% and 12.18%, respectively. And its trailing-12-month net income margin of negative 2.41% compares to the 3.87% industry average. Likewise, the stock’s levered FCF margin of 1.91% is 76.2% lower than the industry average of 8.03%.

In addition, BB’s trailing-12-month ROCE, ROTC, and ROTA of negative 1.28%, 6.58%, and 0.71% compare to the industry averages of 6.51%, 3.80%, and 2.25%, respectively. Its trailing-12-month CAPEX/Sales of 1.13% is 50.6% lower than the 2.30% industry average.

POWR Ratings Reflect Bleak Prospects

BB has an overall D rating, translating to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. BB has a D grade for Sentiment, in sync with analysts’ bleak revenue and earnings growth estimates.

In addition, the stock has a D grade for Stability. The stock’s beta of 1.65 justifies the Stability grade.

BB is ranked #43 out of 50 stocks in the Technology-Communication/Networking industry. 

Beyond what I have stated above, we have also given BB grades for Value, Quality, Growth, and Momentum. Get all BB ratings here.

Bottom Line

Analysts seem bearish about BB’s revenue and earnings growth prospects. The stock is currently trading below its 50-day and 20-day moving averages of $5.45 and $6.28, respectively, indicating a downtrend. The stock might decline further due to uncertain market conditions and its weak fundamentals.

Given BB’s poor profitability and bleak growth prospects, we think the stock is best avoided now.

How Does Blackberry Limited (BB) Stack Up Against Its Peers?

While BB has an overall POWR Rating of D, one might want to consider investing in other Technology-Communication/Networking stocks with an A (Strong Buy) rating, such as Extreme Networks, Inc. (EXTR), AudioCodes Ltd. (AUDC) and Aviat Networks, Inc. (AVNW).

BB shares rose $0.02 (+0.45%) in premarket trading Monday. Year-to-date, BB has declined -53.05%, versus a -21.14% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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