Canadian enterprise software group Blackberry (NYSE:BB) has had a rollercoaster ride in recent weeks. BB stock finished 2020 at $6.63. Then, on Jan. 27, it hit a multi-year high of $28.77. By March, the share price was down to $8.82, but today BB rests at around $11.50.

This recent volatility in BB stock has, in part, been due to Reddit traders who have specifically been concentrating on small stocks with high short interest. In fact, because of that rapid movement in the shares, Blackberry was asked to comment on the situation back in January by the Investment Industry Regulatory Organization of Canada (IIROC).

Blackberry generates a majority of its revenue from software sales to other companies as well as to governments. Once known for its phones, it now focuses on cybersecurity and data privacy. For instance, in 2019, the company acquired cybersecurity group Cylance, which mainly catered to banks. Through this acquisition, Blackberry has been able to offer enterprise software products that rely on artificial intelligence (AI) and machine learning.

Now, management is expected to release fourth-quarter earnings in late March. So, this article will take a look at what investors can expect from BB in the coming days. If you are not yet a shareholder, you should analyze the company’s metrics before committing any capital to the shares. And if you currently have paper profits, you might want to take some of that money off the table. Here’s why.

BB Stock: How Blackberry’s Q3 Earnings Came

Right now, cybersecurity is more important than ever.

For example, recent metrics highlight that, “Global cybercrime is expected to inflict a total of $6 trillion USD in damages in 2021” and that “59% of buyers are likely to avoid companies that suffered from a cyberattack in the past year.” So, because of the increased digitalization we’ve seen and the “work from home” trend this past year, many cybersecurity stocks have seen stellar returns.

In the past one year, BB stock is up over 177%. Put another way, the proverbial $1,000 invested in Blackberry shares a year ago would now be worth over $2,700. Similarly, the ETFMG Prime Cyber Security ETF (NYSEARCA:HACK), an exchange-traded fund (ETF) that has BB as a top holding, has returned nearly 63% in the past 12 months. 

Blackberry announced Q3 results in mid-December. Non-GAAP adjusted revenue of $224 million was down 20% year-over-year (YOY). Adjusted net income was $11 million, a decline of 35% YOY. Non-GAAP earnings per diluted share was 2 cents. The company also ended Q3 with $273 million in cash and equivalents.

However, on Dec. 1, Blackberry and Amazon (NASDAQ:AMZN) “announced a multi-year, global agreement to develop and market BlackBerry’s Intelligent Vehicle Data Platform, IVY.” This platform “will allow automakers to provide a consistent and secure way to read vehicle sensor data, normalize it, and create actionable insights.” Naturally, investors were pleased with this announcement, especially as it holds the potential to boost Blackberry’s business. On the agreement, CEO John Chen also noted:

“Our recently-announced multi-year, exclusive partnership with [Amazon Web Services] AWS to co-develop and co-market BlackBerry IVY, is both strategic and unique. This new platform will create a recurring-revenue business, bringing together BlackBerry’s extensive experience and footprint in embedded automotive with AWS’ unparalleled cloud reach, consumer experience and interface.”

However, at this point, there’s not telling what the revenue or potential profit impact of this new partnership will be.

Bottom Line on BB Stock

This past year was a time when individuals and businesses became increasingly interconnected via technology. As a result, software and cybersecurity shares have had significant run-ups in price. Shareholders in BB stock have also benefited from this need for greater cybersecurity.

However, BB’s current forward price-earnings (P/E) and price-sales (P/S) ratios — 60.93 and 6.37, respectively — point to an overstretched valuation level for a company with a market capitalization of $6.5 billion. Therefore, investors would need to see robust Q4 results to justify the current price.

Are you an investor with paper profits? You might want to decrease your position size in BB prior to the release of earnings. And in the case of a potential decline, you might consider building a position around the $7.50 level or below.

Investors could also consider buying an ETF that carries BB stock as a holding. In addition to HACK, examples of these include the First Trust Nasdaq Artificial Intelligence and Robotics ETF (NASDAQ:ROBT), the iShares Expanded Tech Sector ETF (NYSEARCA:IGM) or the ProShares MSCI Transformational Changes ETF (NYSEARCA:ANEW).

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.