How to Play BlackBerry (TSX:BB) Stock From Here
It has been a brutal year so far for growth investors. The weakness began late last year and gained momentum coming into 2022. Moreover, faster-than-expected rate hikes indicated by the Federal Reserve could continue to weigh on growth stocks. So, in a nutshell, even after correcting 50-60% in the last six months, the bottom could still be far.
BB stock: Is it a good buy or a goodbye?
It has been even harder being a BlackBerry shareholder. The company marked a heroic turnaround from its once mobile manufacturing business to high-growth areas like operating systems for cars and cybersecurity. However, its declining revenues and intermittent profits have almost always been a concern for investors. As a result, BB stock has returned a negative 40% in the last five years.
However, BlackBerry’s recently released long-term outlook could bring some respite. The management expects its total annual revenues to reach US$1.2 billion in the next five years from the current US$718 million in the last 12 months. In addition, the revenue guidance indicates a 13% CAGR through 2027.
BlackBerry’s long-term growth plan
BlackBerry seems to be changing the gear for the future. Along with revenue growth, BlackBerry expects its margins to expand by 2027. The company saw its gross margins erode from 77% in 2019 to 65% in the fiscal year 2022. Per the recent release, the management expects its gross profit margin to enhance by an average of 1% every year for the next five years. Apart from decent revenue growth, the management aims to be cash flow positive by 2025.
BlackBerry expects its IoT (Internet of Things) revenues to increase by 19.8% CAGR through 2027, faster than the average industry growth. It will facilitate superior growth by increasing its market share in the fast-growing addressable market. Note that BlackBerry IVY revenues are not included in the forecast. So, actual top-line growth from this segment will likely be higher by 2027.
It plans to increase hiring and product base, particularly in its cybersecurity vertical. BlackBerry’s cybersecurity business is forecast to grow by 15% CAGR through 2027. Notably, the recent growth visibility conveyed by the management should cheer BlackBerry investors in the short term.
However, shareholders do not seem out of the woods just yet!
The Foolish takeaway
BlackBerry has struggled to convert its operational growth into its financial growth for years. Though it has been operating in high-growth domains, its chronically declining top line is a major concern. How the company proceeds with its market share expansion and improving its operational efficiency remains to be seen.
At the same time, pressures in the broader markets will likely continue to weigh on BB stock. It does not look too attractive from the valuation front, even after the recent decline.
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* Returns as of 4/14/22
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The Motley Fool has no position in any of the stocks mentioned. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.
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