Canada-based BlackBerry Limited (BB) is set to release its fourth-quarter results for the fourth quarter ended February 29, 2024, on April 3, 2024. Analysts predict a revenue of $153.22 million, representing a 1.5% increase in quarterly revenue compared to the previous year. However, its EPS is expected to decline 63.1% year-over-year to a negative $0.03. In this piece, I have discussed why it could be prudent to avoid the stock now.

BB has surpassed analyst EPS estimates in the trailing four quarters. For the to-be-announced quarter, BB anticipates total revenue between $150 million and $159 million. IoT revenue is expected to range from $62 million to $66 million, while Cyber revenue is forecasted to be between $83 million and $88 million. Additionally, Licensing and other revenue is estimated to be approximately $5 million.

Furthermore, BB has made substantial strides in reaching positive cash flow, aiming for $100 million in annualized net profit enhancements via cost reductions and margin expansion, alongside $50 million in previously announced cost-saving measures. The company has outlined strategies to attain roughly $55 million of the $100 million target and foresees sequential enhancements in operating cash flow usage.

Additionally, it concluded a $200 million convertible debenture debt raise, cutting company debt by 45% and ensuring long-term liquidity. Nevertheless, the implementation of such drastic strategies typically requires time before yielding significant results.

BB’s stock has declined 44.9% over the past nine months and 22.5% over the past three months to close the last trading session at $2.76.

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

Mixed Financials

BB’s revenue for the fiscal third quarter ended November 30, 2023, rose 3.6% year-over-year to $175 million. However, the company’s operating loss stood at $11 million. It reported a net loss of $21 million and $0.05 per share. Its free cash flow came in at a negative $33 million.

If we look at its segments, Cybersecurity and IoT revenue rose 7.6% and 7.8% year-over-year to $114 million and $55 million. But its Licensing and other revenue declined 50% from the previous-year quarter to $6 million.

Mixed Valuation

In terms of forward EV/Sales, BB’s 1.96x is 32.9% lower than the 2.92x industry average. Its forward Price/Sales of 1.94x is 34.5% lower than the 2.97x industry average. However, its 1,228.37x forward EV/EBIT is significantly higher than the 20.86x industry average. Its forward EB/EBITDA multiple of 55.85 is 270.8% higher than the industry average of 15.06

Weak Profitability

BB’s trailing-12-month negative net income margin of 68.47% compares to the 2.67% industry average. Its trailing-12-month EBIT and EBITDA margins of 10.11% and 2.17% compare to the industry averages of 4.80% and 9.28%. Furthermore, the stock’s 0.46x trailing-12-month asset turnover ratio is 24.2% lower than the industry average of 0.61x.

Bleak Historical Growth

Over the past years, BB has experienced a notable trend of decline in various key financial metrics. Its revenue has declined at a CAGR of 4.9% over the past three years. Its total assets have fallen at a CAGR of 24.5% over the past three years and at a CAGR of 47% over the past five years.

POWR Ratings Reflect Bleak Prospects

BB’s POWR Ratings reflect its grim outlook. The stock has an overall rating of D, which translates to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. BB has an F grade in Stability, consistent with its 24-month beta of 1.09.

Its weak profitability aligns with its D grade for Quality.

BB is ranked #32 out of 47 stocks in the F-rated Technology – Communication/Networking industry.

Click here to access BB’s Growth, Value, Momentum, and Sentiment ratings.

Bottom Line

BB currently seems to be on a downtrend, with the stock trading below its 50-day and 200-day moving averages of $2.80 and $3.90, respectively.

Despite BB's track record of surpassing analyst EPS estimates in recent quarters, concerns loom over its bleak profitability. In response to these challenges, BB has initiated strategic measures, including cost reduction initiatives and debt restructuring, aimed at bolstering profitability and ensuring long-term financial stability. However, the efficacy of these endeavors remains uncertain.

Given its disappointing financial performance, lackluster historical growth, high beta, and weak profitability, exercising caution with the stock is advisable. Additionally, considering its grim earnings estimates, it may be wise to refrain from investing in BB prior to its earnings release.

Stocks to Consider Instead of BlackBerry Limited (BB)

The odds of BB outperforming in the weeks and months ahead are significantly compromised. However, there are many industry peers with impressive POWR Ratings. So, consider these three B-rated (Buy) stocks from the Technology – Communication/Networking industry instead:

Gilat Satellite Networks Ltd. (GILT)

AudioCodes Ltd. (AUDC)

Ceragon Networks Ltd. (CRNT)

To explore more Technology – Communication/Networking stocks, click here.

What To Do Next?

Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:

10 Stocks to SELL NOW! >

BB shares were trading at $2.68 per share on Monday morning, down $0.08 (-2.90%). Year-to-date, BB has declined -24.29%, versus a 10.19% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

More...