Yahoo Finance Better Buy: BlackBerry Stock vs. CrowdStrike
Written by Aditya Raghunath at The Motley Fool Canada
Investing in the cybersecurity space might be extremely lucrative for long-term shareholders. Despite lower enterprise spending in 2022, a majority of the companies will be unwilling to slash budgets on cybersecurity services, making this vertical fairly recession resistant.
There are a few cybersecurity stocks that trade publicly, allowing investors to gain exposure to a rapidly expanding addressable market. I’ll compare two such stocks, CrowdStrike (NASDAQ:CRWD) and BlackBerry (TSX:BB), to see which is a better buy in 2023.
CrowdStrike stock
One of the major players in the endpoint security segment, CrowdStrike now offers more than 20 different modules to its base of enterprise customers. Over the years, CrowdStrike has successfully expanded its customer base as well as its retention and engagement rates, allowing the company to end the January quarter with US$2.56 billion in annual recurring revenue.
CrowdStrike ended fiscal 2023 with 23,019 customers — an increase of 41% year over year. Further, around 271 companies that are part of the Fortune 500 are its customers.
While CrowdStrike is still reporting a GAAP (generally accepted accounting principles) loss, its free cash flow margin stands at an enviable 33%. CRWD stock is priced at 46 times free cash flow, which might be expensive, but analysts expect sales to rise from US$2.24 billion in fiscal 2023 to US$3.87 billion in fiscal 2025.
While CrowdStrike’s revenue growth will decelerate this fiscal year (ending in January), its adjusted earnings are estimated to widen by 51% year over year. In fact, CRWD earnings are forecast to rise by 56% annually in the next five years.
Down 55% from all-time highs, CrowdStrike stock is trading at a discount of 30% compared to Wall Street price target estimates.
BlackBerry stock
BlackBerry exited the smartphone market a few years back and now provides enterprise-facing software solutions. It derives a majority of sales from its cybersecurity business as well as segments such as the Internet of Things (or IoT).
Despite the business pivot, BlackBerry’s sales were down 14% year over year in fiscal 2021. It fell by another 20% in fiscal 2022 and is forecast to decline by 10% in fiscal 2023 (ended in February).
The erosion in top-line sales is a cause of concern for investors, as BlackBerry is part of high-growth markets. In addition to falling sales, the Canadian tech company is also struggling to remain profitable and is projected to more than double its losses to $0.29 per share in fiscal 2023.
BlackBerry’s shareholders will be hoping for the stock to stage a turnaround once the macro situation improves and demand in the auto sector stabilizes, as one of BlackBerry’s most important offerings is QNX, an embedded operating system for vehicles.
BlackBerry recently sold around 32,000 non-core patents and patent applications to an intellectual property monetization company for US$900 million. The deal is a combination of cash and potential future royalties, which should strengthen BlackBerry’s balance sheet and boost liquidity, allowing the company to pursue growth opportunities.
Valued at a market cap of $3.08 billion, BB stock is priced at 3.5 times forward sales, which is quite steep for a loss-making company wrestling with tepid revenue growth.
The Foolish takeaway
It’s quite easy to choose a winner between BlackBerry and CrowdStrike. While BlackBerry is trading at a lower valuation, CrowdStrike is a potential multi-bagger with enticing growth potential, making the latter a better bet.
The post Better Buy: BlackBerry Stock vs. CrowdStrike appeared first on The Motley Fool Canada.
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Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends CrowdStrike. The Motley Fool has a disclosure policy.
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