In this article, I have evaluated tech stocks, BlackBerry Limited (BB) and Ribbon Communications Inc. (RBBN) to predict which is the right pick. After thoroughly evaluating these stocks, I think that RBBN might be a superior choice for the reasons discussed in this article.
The demand for tech in the United States has been growing at a rapid pace in recent years, driven by various factors such as the increasing adoption of cloud computing, the rise of mobile devices, and the growing importance of data analytics. Cloud-based software solutions have become particularly popular as they offer greater flexibility, scalability, and cost-effectiveness compared to traditional on-premise software.
Revenue in the software industry is expected to grow at a CAGR of 4.1% until 2028.
Furthermore, the Biden Administration launched the $1.50 billion Public Wireless Supply Chain Innovation Fund to promote open and interoperable networks, positioning the U.S. at the forefront of advanced 5G networks and technological progress. Global 5G connections are projected to surpass 1.90 billion by year-end.
RBBN is a clear winner in terms of price performance, as BB has declined 26.7% over the past three months as compared to RBBN’s 39.1% gain. Also, RBBN declined 49.6% over the past six months compared to RBBN’s 5.8% gain.
Here are the reasons why I think RBBN might perform better in the near term:
Recent Developments
On February 21, 2024, BB and the SANS Institute (SANS) announced a new partnership in Malaysia, offering SANS training courses through the soon-to-be-opened BlackBerry Cybersecurity Center of Excellence (CCoE) in Kuala Lumpur.
In an effort to help bolster national cybersecurity capacity in Malaysia, the partnership will offer advanced technology and training to help upskill Malaysia's cyber-defenders, with a particular focus in critical areas like forensics and incident response.
On the contrary, RBBN announced that American Electric Power (AEP), which maintains and operates the nation's largest electricity transmission system, had added Ribbon's IP and Optical products as one of its solutions to continue providing the critical communications needs to support AEP's infrastructure.
Recent Financial Results
For the fiscal third quarter that ended November 30, 2023, BB’s revenue came in at $175 million. The company reported an operating loss and a loss before income taxes of $11 million and $6 million, respectively. Also, its net loss came in at $21 million, or $0.05 per share, respectively.
On the contrary, RBBN’s revenue for the fourth quarter ended December 31, 2023, came in at $226.40 million. Its non-GAAP net income increased 130.4% year-over-year to $21.57 million. Also, its non-GAAP EPS came in at $0.12, representing an increase of 33.3% year-over-year.
Past And Expected Financial Performance
Over the past five years, BB’s revenue declined at a CAGR of 1.2%. Its revenue is expected to increase 26.6% in the year ending February 2024 and 1.9% in the fourth quarter ending February 2024. Its EPS is expected to be negative $0.01 in the year ended February 2025, negative $0.03 in the current quarter ending February 2024 and negative $0.03 in the quarter ending May 2024.
Conversely, RBBN’s revenue has increased at a CAGR of 7.4% over the past five years. Analysts expect RBBN’s revenue to grow by 3.6% in the year ending December 2024. Its EPS is expected to grow by 29.8% in the year ending December 2024 and 50% in the current quarter ending March 2024.
Valuation
BB’s forward EV/EBITDA multiple of 53.69 is higher than RBBN’s 7.25. Additionally, BB’s forward EV/Sales multiple of 1.91 is higher than RBBN’s 0.95.
Thus, RBBN is more affordable.
Profitability
BB's trailing-12-month EBITDA margin of negative 2.17% is lower than RBBN’s 8.16%. In addition, BB’s trailing-12-month levered FCF margin of 9.72% is lower than RBBN’s 9.83%.
Thus, RBBN is more profitable.
POWR Ratings
BB has an overall rating of D, which equates to a Sell in our proprietary POWR Ratings system. Conversely, RBBN has an overall rating of B, translating to a Buy. 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. BB has an F grade for Stability, which is justified by its 24-month beta of 1.92. On the other hand, RBBN has a C grade for Stability, which is in sync with its 24-month beta of 0.78.
Moreover, BB has a D grade in Quality. Its trailing-12-month CAPEX/Sales and asset turnover ratio of 0.84% and 0.46x are 63.8% and 24.2% lower than the industry averages of 2.33% and 0.61x.
On the other hand, RBBN has a C grade in Quality. Its trailing-12-month CAPEX/Sales of 1.14 is 51.3% lower than the industry average of 2.33x. However, its trailing-12-month asset turnover ratio of 0.69x is 13% higher than the 0.61x industry average.
Among the 45 stocks in the Technology - Communication/Networking industry, BB is ranked #29, while RBBN is ranked #5.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Value, Momentum, and Sentiment. Get all BB ratings here. Click here to view RBBN ratings.
The Winner
The technology industry is growing significantly due to advancements and digital transformation across industries. Industry players such as BB and RBBN should benefit from these industry tailwinds.
However, BB's poor profitability, elevated valuation and high beta value make its competitor, RBBN, the better buy.
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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RBBN shares were trading at $2.96 per share on Thursday afternoon, up $0.04 (+1.37%). Year-to-date, RBBN has gained 2.07%, versus a 6.63% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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