BlackBerry could have a lot of success in the automotive sector, this investor says

BlackBerry’s (BlackBerry Stock Quote, Chart TSX:BB) share price continues to slide as investors worry that the (relatively) lofty heights reached by the stock over a year ago are now nothing but a fond memory.

But the downturn is a good reality check, says Teal Linde of Linde Equity Fund, since even with the company’s turnaround well under way, the stock had gotten ahead of itself.

“[BlackBerry] is starting with a valuation that’s quite high,” said Linde, in conversation with BNN Bloomberg Tuesday. “The challenge from an investor’s perspective is that they are succeeding in getting all of these contracts and they’re enjoying a lot of wins in the automotive and connected car sector. They picked the right sector to go in because it’s a huge industry, but the connected car is still very early-stage, and so the amount of business that they’re getting from these wins is still kind of small.”

“I just think that the revenues and the business has some catching up to do in terms of the valuation for the stock which is still quite high,” he says.

Once valued at over $140.00 at the height of its handset business in the late 2000s, BlackBerry’s share price stayed in the $10 to $12 range for a number of years before climbing over much of 2017, reaching a high of $18 by early January 2018. But it’s been mostly downhill from there, with the stock threatening to sink below $11 over the last few days of trading.

Much has been made about the company’s transition from handset maker to software and security company, where BlackBerry’s QNX platform, acquired in 2010, is being deployed in the connected and driverless car sectors.

But Linde is cautious on the stock, saying BlackBerry still has a lot to prove both with its automobile applications and with Cylance, the cybersecurity company purchased earlier this year for US$1.4-billion.

“I wouldn’t be plunging in, but if these wins that they’re getting start to grow into larger and larger businesses —considering the size of the automotive market and the connected car of the future— the company does have a lot of upside if they succeed at that,” Linde says.

“And then the Cylance acquisition, we’ll have to see whether or not that plays out,” he says. “Acquisitions in the tech sector are notoriously full of examples that fail, so you have to be cautious about that.”