With its share price on the move and the company pulling in new contracts, times are looking good for BlackBerry (BlackBerry Stock Quote, Chart TSX:BB).
A little too good, says portfolio manager Michael Sprung, who claims that while the Canadian tech company looks to be headed in the right direction, the stock is just too expensive.
Last week, BlackBerry announced that it would be setting up a subsidiary of the company in Washington, DC, to handle BB’s growing relationship with federal agencies in the US. BlackBerry Government Solutions will aim to “deepen our reach” within the US government sector, according to CEO John Chen, with the company’s AtHoc crisis communication platform already licensed to the Department of Homeland Security, the Department of Justice and the Department of Energy.
The move is part of the company’s overall transformation from mobile phone company to software and security firm, says Sprung, president of Sprung Investment Management, who spoke to BNN Bloomberg Wednesday.
“They’ve evolved very effectively into a software company and they’ve been announcing a number of contracts, not only with automotive companies but with other potential users for their software. I gather that they’ve been talking to US government agencies in terms of their security, for which they’ve been extremely well known for a number of years,” says Sprung.
“But I think that the price has also begun to reflect a lot of that good news, so where it’s priced currently it wouldn’t be on our radar because on a multiple of earnings, it’s just very expensive. I’d be hesitant to jump in at this point,” he says.
After a bad year in 2018 where BB’s share price fell 31 per cent, like the rest of the tech sector, the stock has begun 2019 on a better note, now sitting up 29 per cent year-to-date.
Ahead of BlackBerry’s fourth quarter fiscal 2019 financials due on March 27, investors will be looking for a repeat of its third quarter ended November 30, delivered on December 20. Then, the company posted a net profit of $59 million, which compared to a loss of $275 million a year prior and amounted to an EPS of five cents per share, better than the expected two cents per share. (All figures in US dollars.) Its Q3 revenue was $226 million, which was better than the Street consensus of $212.5 million.