Shares of once-upon-a-time smartphone pioneer, now relegated to software company, BlackBerry (BB), have doubled in price over the course of the last year.
Partly in recognition of this fact, on Tuesday, Canaccord analyst Michael Walkley raised his price target on the stock 25% to $10 a share.
Now, you might think this would be good news for BlackBerry stock, but in fact, at the same time as Walkley walked his price target higher, he also downgraded BlackBerry stock — to Sell. (To watch Walkley’s track record, click here)
How does Walkley square this circle — raising the price target while downgrading the stock? Basically, he does this by explaining that, yes, BlackBerry’s business is improving. But it’s not improving as fast as the stock price might suggest, and at a share price north of $11, BlackBerry stock is “still overvalued.”
Here’s how his reasoning works: On the one hand, BlackBerry looks to be on track to reach its target of collecting $950 million in revenue in fiscal 2021, which wraps up this month. Software and Services revenues appear to be showing “modest sequential growth” as QNX operating system sales recover from a slump. Software licensing revenue could exceed expectations for $250 million for the fiscal year. Nevertheless, BlackBerry’s growth isn’t going any great guns.
Walkley estimates that Software and Sales will grow only 5.6% year over year in fiscal 2022, for example, even assuming continued recovery in QNX sales and assuming the new Spark security platform sells well. That being said, single-digit growth rates aren’t much to write home about, and even in fiscal 2023, the analyst doesn’t see growth getting much above 7.4% — still single-digit.
In short, Walkley warns that because “BlackBerry’s software business is growing much slower than software security comparable companies, we believe the shares should trade at a group discount.” Valuing the shares therefore at an enterprise value five times projected sales for fiscal 2023, the analyst sets his price target at $10 a share. And here’s the thing:
BlackBerry is not a profitable stock. It’s lost money in six of the last 10 years. It lost money in fiscal 2020. It probably lost money in fiscal 2021. It’s probably going to lose money… really, as far out as any analyst has posted estimates for it — all the way through fiscal 2023 in fact.
Yes, BlackBerry shares raced past $25 very recently — late January — and some investors may see opportunity in that discrepancy between the stock’s 52-week high and where it trades today. But that run-up was an anomaly, most likely traced to Reddit and Robinhood traders forcing the stock higher in a WallStreetBets-inspired short-squeeze. $25 wasn’t based on fundamentals, and $25 is therefore not a share price justified by BlackBerry’s business performance.
Overall, Wall Street has a pessimistic outlook on the software maker right now. Not only does the stock show a Moderate Sell consensus with not a single Buy rating over the past three months, but the current consensus price target indicates double-digit downside risk. (See BB stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.