While the 5G revolution progresses at an unprecedented rate, the future of the communication and networking industry blooms with profound potential. Continued innovation and expanding acceptance of next-generation technologies could revolutionize numerous businesses in this rapidly evolving tech landscape.
Given this backdrop, I have evaluated two tech stocks, BlackBerry Limited (BB) and PowerFleet, Inc. (PWFL), to determine which has better upside potential. Before analyzing these stocks, let’s discuss what’s happening in the technology communications sector.
The communication and network industry remains a crucial driver of economic growth and innovation amid challenges such as cybersecurity threats, regulatory changes, and infrastructure upgrades.
The revenue in the global communication services market is expected to grow at a CAGR of about 2%, reaching a market volume of $1.58 trillion by 2028. This growth is fueled by the ongoing 5G revolution, increasing demand for cloud-based services, and the rise of IoT, which are expected to create new opportunities for businesses to innovate and thrive.
The significance of Artificial Intelligence (AI) in the telecom industry is intrusive, with the global AI in the telecom market projected to reach $38.80 billion by 2031. The rise of AI-enabled smartphones, on-demand hyper-scale computing and storage, and the development of large language models propel this transformation.
According to Deloitte’s Global Technology, Media, & Telecommunications Predictions report, the adoption of AI to produce chips, growth in broadband satellites, and rising streaming prominence are expected to shape the communication industry’s future.
Moreover, the number of mobile network operators investing in 5G stand-alone networks is expected to double from more than 100 operators in 2022 to at least 200 by the end of 2023. The global 5G services market is estimated to reach $1.67 trillion by 2030, growing at a CAGR of 52%.
In addition, the growing demand for high-speed data transfer and reliable wireless connectivity amid increased adoption of 5G technology is driving the growth of the global networking equipment market, which is projected to reach $143.46 billion by 2031, growing at a CAGR of 4.4%.
Furthermore, investors’ interest in networking stocks is evident from the iShares North American Tech-Multimedia Networking ETF (IGN), with 6.7% returns over the past year. BB and PWFL are expected to benefit from such tailwinds.
In terms of price performance, BB has surged 43.2% year-to-date compared to PWFL’s 4.1% returns. Over the past six months, PWFL has gained 3.7%, while BB rose 10.7%. However, in terms of past year’s performance, PWFL is the clear winner with 9.4% gains versus BB’s 18.2% decline.
But which stock is a better buy now? Let’s find out.
Latest Developments
On June 26, BB announced that TechInsights, a leading technology analysis and market research firm, had determined BlackBerry® QNX® software is now embedded in over 235 million vehicles worldwide, representing an increase of 20 million year-over-year. This reflects the company’s continued dominance of secure and safety-certified embedded software in the automotive market.
In the same month, the company partnered with the leading automotive cybersecurity platform, Upstream Security, to help automakers strengthen the overall security of their vehicles.
By leveraging BlackBerry IVY®’s rich telematics data and edge compute capabilities with Upstream’s cybersecurity expertise, automakers would be able to expand the coverage of their vSOC (Vehicle Security Operations Centers) while lowering cloud and connectivity costs by up to 80%.
This collaboration should help the company expand its presence in the automotive cybersecurity market while offering automakers comprehensive, cost-effective, and secured solutions.
On March 29, PWFL launched a new Safety and Security data-powered application for its Unity fleet intelligence platform.
The application would provide businesses with improved visibility and insights from real-world safety and security incidents, helping them manage the drivers effectively, prevent theft, and provide collision reconstruction capabilities. Also, it is expected to be a valuable tool for businesses looking to improve their fleet safety and security.
In the same month, the company announced the acquisition of Movingdots, a German-based company that provides insurance telematics and sustainable mobility solutions.
This acquisition is expected to enhance PWFL’s fleet intelligence platform with more comprehensive and innovative solutions. Further, it would increase the company’s global reach and total addressable market, which is expected to drive growth in the future.
PWFL’s Safety and Security solution, combined with Movingdots’ insurance-based risk profiling and enhanced AI proposition, would provide holistic solutions to improve fleet safety and security worldwide. Further, it enhances the company’s position as a global leader in this space.
Recent Financial Results
PWFL’s total revenues amounted to $32.84 million in the first quarter (ended on March 31, 2023), while its gross profit increased 15.4% year-over-year to $16.62 million.
Net income attributable to common stockholders stood at $3.49 million and $0.08 per share, compared to a net loss of $4.12 million and $0.12 per share in the year-ago period, respectively. Also, the company’s adjusted EBITDA amounted to $1.38 million improved significantly from an adjusted EBITDA loss of $614 thousand in the prior-year period.
In the fiscal first quarter that ended May 31, 2023, BB’s revenue improved by 122% year-over-year to $373 million, while its gross margin increased 72.1% from the year-ago value to $179 million.
The company’s adjusted net income came in at $35 million and $0.06 per share, compared to an adjusted net loss of $31 million and $0.05 per share from the prior-year quarter, respectively. Also, its non-GAAP adjusted EBITDA amounted to $41 million versus an adjusted EBITDA loss of $21 million in the same period.
Past and Expected Financial Performance
PWFL’s revenue has grown at CAGRs of 10.8% and 23.8% over the past three and five years, respectively. Also, its total assets have increased at a marginal CAGR over the past three years. Analysts expect PWFL’s revenue to increase 3.9% in fiscal 2023 (ending December 2023) and 12.1% in fiscal 2024.
The company’s EPS is expected to be $0.06 in the current year and $0.28 during the following year. Moreover, PWFL’s EPS is expected to grow 30% per annum over the next five years.
On the other hand, BB’s revenue has declined at CAGRs of 4.8% and 1.1% over the past three and five years, respectively. Likewise, its total assets have decreased by 19.6% CAGR over the past three years. Street expects BB’s revenue to increase by 31% for the fiscal year 2023 (ending February 2024) but decline by 7.9% in fiscal 2024.
Also, its EPS is expected to amount to $0.02 in the current year and $0.05 in the next year. However, BB’s EPS is expected to decline substantially by 200.7% per annum over the next five years.
Profitability
BB’s trailing-12-month revenue is 6.4 times what PWFL generates. Also, BB’s trailing-12-month gross profit margin of 57.38% is 16.5% higher than PWFL’s 49.24%.
However, PWFL is more profitable, with EBITDA and levered FCF margins of 1.75% and 3.74% compared to BB’s negative 6.50% and 4.21%, respectively. In addition, PWFL’s trailing-12-month asset turnover ratio of 0.60x is 42.8% higher than BB’s 0.42x.
Valuation
In terms of forward non-GAAP P/E, PWFL is currently trading at 49.41x, 78.8% lower than BB, which is trading at 233.50x. Moreover, PWFL’s forward EV/Sales and EV/EBITDA multiples of 1.18 and 16.64 are 61.7% and 73.3% lower than BB’s 3.08x and 62.45x, respectively.
Hence, PWFL is relatively more affordable.
POWR Ratings
PWFL has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. On the other hand, BB has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. PWFL has a B grade for Value, justified by its lower-than-industry valuation. In terms of trailing-12-month EV/Sales and Price/Book, PWFL is trading at 1.23x and 1.13x, 59.9% and 64.6% lower than the industry averages of 3.06x and 3.18x, respectively.
Conversely, BB has a C grade for Value, consistent with its mixed valuation. BB’s trailing-12-month EV/Sales multiple of 3.08 is marginally higher than the industry average of 3.06x. However, its trailing-12-month Price/Book ratio of 3.17x is slightly lower compared to the industry average of 3.18x.
In addition, PWFL has a grade of B for Stability consistent with its 24-month beta of 0.82, indicating comparative stability than the broader market. On the other hand, BB’s 24-month beta of 1.97 justifies its D grade for Stability.
Of the 53 stocks in the Technology - Communication/Networking industry, PWFL is ranked #7, while BB is ranked #37.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Sentiment, and Quality. Click here to view PWFL Ratings. Get all BB ratings here.
The Winner
The emergence of new technologies such as 5G, the Internet of Things (IoT), and cloud computing have created new opportunities for companies to innovate and provide new services that meet the evolving needs of consumers and businesses.
This significant transformation presents exciting opportunities for the industry participants such as PWFL and BB, which are poised to benefit from the industry’s tailwinds.
However, given PWFL’s strong profitability landscape, attractive valuation, and promising bottom-line estimates, it could witness a better upside than BB. Thus, PWFL could be a better buy now.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy or Buy. View all the top-rated stocks in the Technology - Communication/Networking industry here.
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BB shares were trading at $4.69 per share on Thursday afternoon, up $0.02 (+0.43%). Year-to-date, BB has gained 43.87%, versus a 20.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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