Waterloo, Canada-based software company BlackBerry Limited (BB) provides intelligent security software and services to enterprises and governments worldwide. The smartphone pioneer is transitioning itself and venturing into the cybersecurity and automotive software space. The stock appeared on the radars of retail investors on Reddit forums, who pushed BB's share price to sky-high levels earlier this year.

Its price rally was short-lived, however. The stock has slumped 38.9% over the past six months and 19.7% over the past month to close yesterday’s trading session at $8.60. BB shares are trading below their 50-day and 200-day moving average and near their 52-week low. Moreover, BB has a 1.07 beta, indicating high volatility.

BB has updated its BlackBerry® Guard 2.0 solution, its managed detection and response (MDR) service, and announced advancements in next-generation automotive cockpits. BB has also participated in several prominent partnerships with industry leaders to expand its portfolio and strengthen its position in the industry. However, the pandemic-led headwinds had been limiting its prospects. Although its strategic moves could position the company for long-term growth, its bleak profit margins and insufficient cash flows are a concern.

Click here to check out our Software Industry Report for 2021

Here is what could shape BB’s performance in the near term:

Bleak Profitability

BB’s negative 25.87% and negative 83.78% respective EBIT  and net income margins are substantially lower than the 9.15% and 6.40%  industry averages. Moreover, BB’s ROE, ROA, and ROTC of negative 40.28%, 24.73%, and 5.19%, respectively, compare with the 8.29%, 3.62%, and 4.93% industry averages.

Bleak Near-Term Growth Prospects

Analysts expect BB’s revenues to decline 3.3% in the next quarter and 20.6% in the current year. However, its revenue is expected to grow 23.3% year-over-year to $900.03 million in the following year. The Street expects BB’s EPS to decrease 450% year-over-year to negative $0.07 in the current  quarter. The company’s EPS is expected to decline 200% in the next quarter and 216.7% in the current year. In addition, its EPS is expected to decline 21.9% per annum over the next five years.

Of the four Wall Street analysts that rated the stock, three rated it Sell, while one rated it Hold.

Poor Financial Positioning

BB’s revenues declined 32.4% year-over-year to $175 million in its fiscal second quarter, ended August 31. Its operating loss stood at $141 million, up 540.9% from the same period last year. And its net loss grew 526.1% from its year-ago value to $144 million. The company’s non-GAAP EPS came in at a negative $0.06 versus the $0.10 year-ago value.

Also, its net cash flow from operating activities was negative $18 million for the six months ended August 31. And its cash and cash equivalents balance decreased 64.1% year-over-year to $318 million.

POWR Ratings Reflect This Bleak Prospects

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

The stock has a D grade  for Quality, which is consistent with its lower-than-industry profit margins.

BB also has a D grade for Stability, in sync with its high beta.

Of the 55 stocks in the Technology - Communication/Networking industry, BB is ranked #51.

Beyond what I have stated above, one  can also view BB’s grades for Sentiment, Growth, Momentum, and Value here.

View the top-rated stocks in the Technology - Communication/Networking industry here.

Bottom Line

BB stock price has been declining in price over the past few months, and the stock is currently trading near its 52-week low. The company has been focusing on strengthening its footing in the software services business through several partnerships and enhancements. However, its most recent quarterly financials were on the weak side. Also, the company’s negative profit margins are a concern. Given analysts' expectations of further declines in its financials, 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 the following Technology - Communication/Networking stocks with an A (Strong Buy) rating: Extreme Networks, Inc. (EXTR), Photronics, Inc. (PLAB), and Viavi Solutions Inc. (VIAV).

Click here to checkout our Cybersecurity Industry Report for 2021

BB shares fell $0.04 (-0.47%) in premarket trading Wednesday. Year-to-date, BB has gained 29.71%, versus a 25.15% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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