BlackBerry Ltd (NASDAQ:BBRY) stock has rallied around 50% this year. Can the rally sustain or we are due for a pull back?
Things are looking up for BlackBerry Ltd (NASDAQ:BBRY). Shares of the Canadian software company have seen a strong rally since earnings on the back of multiple bullish reports and change in sentiment. BlackBerry stock hit the double-digit mark in Yesterday's trade as the stock closed the day at $10.18, a new 52-week high. BlackBerry's recent boost came from an overly bullish analyst note and the "Wanna Cry" ransomware attack. The recent hackings and the ransomware attack has brightened the future of BlackBerry as its products are known to provide strong digital security and encryption. BlackBerry stock gained 8% in last two days on the speculations that BlackBerry's security software will see an increase in demand due to the global cyber attack.
Ransomware attack is good for BlackBerry stock.
"Wanna Cry" which affected more than 100 countries and thousands of institutions globally has brought cybersecurity to the fore. The ransomware had attacked several hospitals and crippled UK's National Health System. Given the severity of the attack, it is likely that hospitals will go for upgrading their cyber security. And as we have discussed earlier, BlackBerry is one of the first movers in Medtech Cybersecurity.
The company has already worked with diabetes device manufacturers in securing insulin pumps which have been hacked before. According to CEO John Chen "companies providing medical monitoring devices must protect health data on the device, guarantee it connects securely to the healthcare system, and most importantly ensure that it cannot be hacked…BlackBerry Secure helps solve this triple threat". Medtech Cybersecurity market will continue to grow with growth in internet-connected health care products. According to a PWC report, by 2020, the market for Internet-connected health care products is expected to be worth an estimated $285 billion in economic value.
New deals in connected car market?
Apart from Medtech BlackBerry is also focusing on connected cars. BlackBerry has already signed a deal with Ford (NYSE:F) for infotainment solution. The company recently announced that they are looking to expand the Ford partnership beyond infotainment solution. According to recent reports, the company is also in talks with two more auto manufacturers for connected car solutions, Aston Martin and Range Rover. According to reports, the company is developing a remote scanner for cars that can tell if they have been hacked. While connected cars provide convenience it also increases the chances of being hacked.
Auto manufacturers started showing increased interest in cyber security since 2015, when two hacking experts uncovered vulnerabilities in Fiat Chrysler vehicles which led to 1.4 million autos getting recalled n the U.S. According to analysts, a deal with this luxury carmakers could fetch as much as $10 per car per month for BlackBerry. The Ford deal is estimated to fetch $4 per car. However, it will be a long time before the company can sign any concrete agreement with these car makers. In fact, a spokesman for Aston Martin said in an email he was not aware of the company testing such a product. BlackBerry is making a huge bet on the connected car market to drive its future revenue growth.
The bullish sentiment.
Ever since the company reported better than expected numbers in its Q4 earnings report, things have been looking up for BlackBerry. The earnings beat was followed by a $850 million windfall from a binding arbitration award against Qualcomm. The huge windfall has opened several opportunities for the company, including acquisitions in software security and connected car markets. The company has still not announced it plans for the windfall. The nearly $900 million windfall has reduced a lot of risk from the balance sheet and his given the BlackBerry management time to execute their turnaround strategy which has been going on for more than three years now.
The newly launched KeyOne phone which is being marketed under BlackBerry brand has also received some positive reviews, though its impact on the bottom line numbers is still not clear. While recent events and earnings suggest improvement in BlackBerry's fortunes, the company is still not completely out of woods. Revenues are not expected to grow until FY 19 and it has still to post a GAAP profit. The company has not been able to sign any new significant customers for its connected cars products. BlackBerry stock still remains a risky bet, especially after the recent rally. Valuations have soared and the stock has entered the overbought territory. RSI is currently over 79. Expect a pullback in the short-term.
Check out our daily stocks to buy for daily trading ideas. Looking for great tech stocks? Check out Amigobulls' top stocks to buy, which have beaten the NASDAQ by around 135%. We also have our set of top picks from the auto sector, which have beaten the S&P 500 by over 180%.