Research In Motion Targeting $18 Book Value?

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Research In motion (RIMM) [$23.81 at 12:07 p.m. Friday] after trading as low as $22.52 today, is targeting a re-test of the bottom at $21.60, hoping to put a double bottom in place, short term. Longer term with a recent analyst target of $20 and a book value of $18, it seems RIMM is targeting a price lower than $21.60 and book value is as good a target as any, considering the great unknowns about future revenue and earnings.

Our quantitative models rated RIMM a 4 Star, value buy before earnings but scored it a sell if ranked with growth stocks. Is all of this selling being done by the growth funds and are the value funds buying yet? Let's go to some of the metrics to see why RIMM looks like a value buy, while price keeps dropping and continues to look for a bottom.

RIMM 24 18 5 -0- 5.7 20
AAPL 393 75 31 -0- 12.2 475
GOOG 543 161 121 -0- 13 700
NOK 6.3 4.6 3.5 9.1 16.1 7
MSFT 27 7 6 2.4 8.6 30

What is immediately apparent with RIMM is that the price is approaching book value, cash as a percentage of price is very attractive and the forward PE shows how much the market is discounting future earnings reports. The analyst target of $20 is the most recent and lowest target before earnings were announced. Usually this is near but below the mean analyst target when a stock is in a downtrend like RIMM. However, in the case of RIMM it is enormously below the $36 mean target.

It is also obvious that the recent low, price target of $20 is close to the recent bottom in price of $21.60. Of course price would have to drop below $20, closer to $18 book value or below for this target to be attractive. With no debt and a big cash position, trading at close to book value, it is possible that the easy short in this stock may be coming to an end. The easy money in the drop from the 52-week high of $71 is over. But obviously a retest of $21 still makes it attractive to the shorts. There are indications of exhaustion selling but it may take capitulation selling to form the final bottom on RIMM.

The great unknowns that continue to drive RIMM's price down are:

  1. When will the loss of market share stop?
  2. What will the level of revenue and income be for RIMM in a market dominated by APPL?

Meanwhile, the price charts are showing that RIMM has stopped cascading down in price and is attempting to put a bottom in place. How long that bottoming process takes and where the actual bottom is, remains to be seen.

In conclusion, whether you look at fundamentals, forecasted earnings discounted by a very low FPE, or a price chart, RIMM is closing in on a bottom. Obviously it is no longer of any interest to the AAPL/GOOG growth managers and is making the transition to a value or takeover play. But at what price? That is the answer the market has yet to determine and, of course, the bottom-fishing buyers.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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