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Research In Motion (RIMM) is at a crossroads in its history. Although it is still growing earnings and increasing revenues, it is facing an existential threat from the iPhone from Apple (NASDAQ:AAPL) and Droid smartphones. There are very few stocks that have such a divergence of opinion on whether the company is an undervalued turnaround situation or a value trap a la Palm. Let's examine both the bull and bear cases.

Bull – RIMM is an extremely undervalued equity based on earnings, cash flow and revenues. Research in Motion is selling at little over seven times this year's earnings and around 6.5 times next year's consensus. With a PEG of less than .5 and selling at approximately 6 times operating cash flow, it is one of cheapest stocks out there whose revenues are still growing at double digits. New product rollouts such as its tablet and new Blackberry Bold out in summer will reverse its market share decline. Earnings have increased tenfold since 2006 and RIMM has overcome challenges before in this ultra-competitive space with rapidly changing dynamics. It will soon regain its luster as a top tier technology firm.

Bear – RIMM is in a death spiral much like another one time leader, Palm. It is rapidly losing market share to Apple and Droid. Its first foray into tablets is a matter of too little, too late. RIMM did post a 31% year over year increase in smartphone sales, but this pales in comparison to Apple, Samsung (OTC:SSNLF), and HTC which all posted over 100% increases. The latter two on the Droid operating system. Apple now is #2 behind Nokia (NYSE:NOK) with 18.7% of the market, RIMM is a fast fading third with 13.7% market share with Samsung and HTC coming up fast with the prospect of surpassing RIMM as well by yearend 2012. RIMM still has a good hold of the enterprise market, but with the incredible success and business applications of iPad; how long will it be before RIMM is an also ran in this market as well?

Prognosis – It seems one of two scenarios plays out. RIMM's new products stem the tide of the Apple/Droid avalanche somewhat allowing RIMM to be priced more in line with its strong revenues and earnings, in which case it is a $100 stock by 2013. In the second scenario, none of RIMM's products turns out to be a success, it continues to lose market share to Apple and Droid, eventually concedes the enterprise market as well. In this case, Blackberry goes the way of Palm and becomes irrelevant and is selling below $20 by 2013.

Option Play – Since either scenario is plausible and I don't want to tie up too much capital in betting either way, I believe the way to play this is via options. My play is to buy one Jan 2013 60 call for $5.45 and two Jan 2013 puts for $2.15 for a total outlay of $9.75 per position. If RIMM at option expiration ends at or above $70 or below $25, you make money. If RIMM goes to $100, you make four times your money. If RIMM goes the way of the dodo bird, and enters 2013 at $15 you triple your money. Seems like a reasonable risk/reward bet.

Source: Research In Motion at Crossroads: Play It With Options