Amid economic uncertainty, the networking industry is thriving due to the demand for connectivity and digital solutions. Notably, emerging technologies are leading networking businesses to modernize, enhance efficiency, and stay competitive.
Given this backdrop, let's explore the potential of BlackBerry Limited (BB) and PCTEL, Inc. (PCTI). Before diving deeper into the fundamentals of these stocks, let’s discuss why the tech industry is well-positioned for growth.
The industry is meeting increased demand for networking and communication due to remote work and tech advancements. Tech has rebounded, with Nasdaq up 27.8% year-to-date. Enterprises enhance digital capabilities, raising the need for advanced networking. The global communication market is expected to reach $1.58 trillion by 2028, growing with a 2% CAGR.
The Biden Administration has launched the Public Wireless Supply Chain Innovation Fund, dedicating $1.50 billion to support the creation of open and interoperable networks. This initiative seeks to take the lead in establishing open and interoperable 5G networks, promoting technological progress in the United States.
On top of it, the rapid rollout of 5G will boost the need for networking tech, and security concerns related to cloud apps and hybrid work will drive network security demand. The 5G market is predicted to reach $106.64 billion in 2023, expanding to $990.33 billion by 2028, with a strong 56.2% CAGR from 2023 to 2028. Also, the global 5G connections are set to exceed 1.90 billion by year-end.
Considering these conducive trends, let’s examine the fundamentals of the two stocks from the Technology - Communication/Networking industry, starting with the one ranked lower from the investment point of view.
Stock to Avoid:
BlackBerry Limited (BB)
Headquartered in Waterloo, Canada, BB provides intelligent security software and services to enterprises and governments worldwide. The company operates through three segments: Cybersecurity; IoT; and Licensing and other.
In terms of the trailing-12-month Capex/Sales, BB’s 0.73% is 70.1% lower than the 2.43% industry average. Likewise, its 0.41x trailing-12-month asset turnover ratio is 33.4% lower than the industry average of 0.62x.
For the fiscal second quarter ended August 31, 2023, BB’s revenue decreased 21.4% year-over-year to $132 million. Its adjusted gross margin decreased 19.6% over the prior-year quarter to $86 million. The company’s adjusted net loss and adjusted loss per share came in at $23 million and $0.04, representing decreases of 20.7% and 2% year-over-year, respectively.
For the quarter ended September 30, 2023, BB’s EPS is expected to remain negative. Over the past six months, the stock has declined 28.3% to close the last trading session at $3.60.
BB’s bleak prospects are reflected in its POWR Ratings. The stock has an overall D rating, which translates to a Sell in our proprietary system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It has an F grade for Stability and a D for Growth and Quality. It is ranked #42 out of 46 stocks in the Technology - Communication/Networking industry. To access BB’s grades for Value, Momentum, and Sentiment, click here.
Stock to Buy:
PCTEL, Inc. (PCTI)
PCTI provides industrial Internet of Things (IoT) devices, antenna systems, and test and measurement solutions worldwide. The company designs and manufactures precision antennas and industrial IoT devices that are deployed in small cells, enterprise Wi-Fi access points, fleet management, and transit systems and equipment and devices for the industrial IoT.
On October 13, 2023, PCTI announced its acquisition by Amphenol Corporation for approximately $139.7 million, with PCTI stockholders receiving $7.00 per share in cash. The deal is subject to PCTI stockholder approval and customary closing conditions and is expected to close in the fourth quarter of 2023 or early 2024.
David Neumann, the CEO at PCTI, expressed excitement about joining forces with Amphenol, a leading antenna solutions company. He highlighted PCTI’s strong position in antenna and test & measurement innovation and its ability to meet global demand for high-reliability applications. He also anticipates accelerated growth opportunities through the combination of the two companies.
On August 3, 2023, PCTI announced its new 5G FR1 Omnidirectional antenna optimized for Industrial IoT applications, designed to provide reliable wireless connectivity and extensive coverage in harsh environments for mission-critical communication applications.
Denis Dmitruk, Technical Product Manager at PTCI, said, “At PCTEL we are always offering innovative solutions that address the connectivity challenges in mission-critical communications. The new 5G FR1 Omnidirectional antenna is a reliable, cost-effective solution that has been tested in the harshest environments and offers high performance across the whole 5G FR1 frequency band.”
In terms of the trailing-12-month net income margin, PCTI’s 6.65% is 203.3% higher than the 2.19% industry average. Likewise, its 6.50% trailing-12-month EBIT margin is 39.9% higher than the industry average of 4.65%. Furthermore, the stock’s 8.73% trailing-12-month levered FCF margin is 10.6% higher than the industry average of 7.90%.
In the fiscal third quarter that ended on September 30, 2023, PCTI’s revenues amounted to $17.39 million, while its gross profit came in at $7.61 million. The company’s non-GAAP net income amounted to $9 thousand. Also, its adjusted EBITDA came in at $270 thousand.
Analysts expect PCTI’s EPS and revenue for the fiscal year ending December 31, 2024, to increase 20.7% and 10.1% year-over-year to $0.35 and $93.50 million, respectively. The stock has gained 59.3% year-to-date to close the last trading session at $6.85.
It’s no surprise that PCTI has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It has a B grade for Value, Sentiment, and Quality. It is ranked #6 in the same industry. Beyond what we stated above, we also have given PCTI grades for Growth, Momentum, and Stability. Get all PCTI ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
BB shares were trading at $3.66 per share on Friday afternoon, up $0.06 (+1.67%). Year-to-date, BB has gained 12.27%, versus a 16.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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