BlackBerry Ltd (BB, Financial) has been on the radar of many investors due to its daily gain of 18.06% and a 3-month gain of 0.97%. However, the company has reported a Loss Per Share of 1.06. This raises the question: Is the stock Modestly Undervalued? Through a detailed valuation analysis, we aim to answer this question and provide valuable insights for potential investors.
A Snapshot of BlackBerry Ltd (BB, Financial)
BlackBerry, once the world's largest smartphone manufacturer, has transitioned into a software provider with a focus on end-to-end secure communication for enterprises. The firm specializes in endpoint management and protection, catering to regulated industries like government. It also offers embedded software to the automotive, medical, and industrial markets. With a stock price of $5.23 per share and a market cap of $3.10 billion, our analysis suggests that BlackBerry's stock is modestly undervalued.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
For BlackBerry (BB, Financial), our analysis suggests that the stock is modestly undervalued, indicating that the long-term return of its stock is likely to be higher than its business growth.
Assessing BlackBerry's Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent loss of capital. Therefore, it's crucial to review the financial strength of a company before deciding to buy its stock. BlackBerry's cash-to-debt ratio stands at 1.17, which is worse than 63.86% of companies in the Software industry. GuruFocus ranks BlackBerry's overall financial strength at 5 out of 10, indicating fair financial strength.
Evaluating BlackBerry's Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. BlackBerry has been profitable 3 times over the past 10 years. However, its operating margin is -17.83%, which ranks worse than 71.82% of companies in the Software industry. GuruFocus ranks BlackBerry's profitability at 3 out of 10, indicating poor profitability.
Company growth is a crucial factor in valuation. Companies that grow faster create more value for shareholders, especially if that growth is profitable. Unfortunately, BlackBerry's average annual revenue growth is -15%, which ranks worse than 87.04% of companies in the Software industry. Its 3-year average EBITDA growth is 0%, which ranks worse than 0% of companies in the Software industry.
BlackBerry's ROIC vs WACC
Another way to assess a company's profitability is to compare its return on invested capital (ROIC) with its weighted average cost of capital (WACC). BlackBerry's ROIC is -9.43, and its WACC is 9.38, suggesting that the company is not efficiently generating cash flow relative to the capital it has invested in its business.
Conclusion
In conclusion, BlackBerry (BB, Financial) stock appears to be modestly undervalued. The company's financial condition is fair, but its profitability is poor. Its growth ranks worse than 0% of companies in the Software industry. For more details on BlackBerry stock, check out its 30-Year Financials here.
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