Seeking Alpha
Profile| Send Message|
( followers)  

There has been a lot of controversy surrounding Research in Motion (RIMM) lately, especially on this site. This brings up one simple matter; should we buy, sell, or hold this stock? I have taken the time these past couple of days to see what the buzz is all about and whether we should get in, get out, or sit tight. There is no doubt this stock had a rock solid run all the way up to $160 just a couple of years ago. What changed and is it worth another chance? What I will attempt to explain is whether or not its run is truly up, or if this is just a bump in the road.

The Buzz

Research In Motion Limited is a designer, manufacturer and marketer of wireless solutions for the worldwide mobile communications market. RIM provides platforms and solutions for access to information, including e-mail, voice, instant messaging, short message service (SMS), Internet and intranet-based applications and browsing. RIM's portfolio includes the BlackBerry wireless solution, the RIM Wireless Handheld product line, software development tools and other software and hardware. The company is best known for its BlackBerry wireless e-mail device. Introduced in 1999, BlackBerry has found popularity primarily in the enterprise market (large corporations and government institutions), but has recently also had success penetrating the consumer market.

Overall growth in the traditional phone market has been in the low double digits for the past five years, while the combined annual growth rate of the smart-phone market in the U.S. over the same period was 58%. This is the primary segment that RIMM's handsets target, and it had roughly 23% share as of April 2011, according to Nielsen Mobile Insights. At the end of November 2011 RIMM had roughly 75 million BlackBerry subscribers. RIMM's BlackBerry service is offered by some 565 wireless carriers around the globe. The current market price is $14.66 with a general analyst consensus for a one-year price target of $17.04. This represents a 16.23% upside potential despite its 52-week price performance of -77.72%.

The Numbers:

Index - P/E 3.46 EPS 4.24 Insider Own 10.62% Shs Outstand 524.16M Perf Week 0.62%
Market Cap 7.68B Forward P/E 5.06 EPS next Y 2.90 Insider Trans - Shs Float 470.91M Perf Month -5.78%
Income 2.22B PEG 1.54 EPS next Q 0.85 Inst Own 60.57% Short Float 10.18% Perf Quarter -19.41%
Sales 19.80B P/S 0.39 EPS this Y 46.92% Inst Trans 0.16% Short Ratio 2.04 Perf Half Y -44.70%
Book/sh 19.77 P/B 0.74 EPS next Y -30.46% ROA 17.02% Target Price 19.25 Perf Year -78.26%
Cash/sh 2.49 P/C 5.88 EPS next 5Y 2.25% ROE 24.43% 52W Range 12.45 - 68.81 Perf YTD 1.10%
Dividend - P/FCF - EPS past 5Y 58.34% ROI 23.75% 52W High -78.65% Beta 1.70
Dividend % - Quick Ratio 1.78 Sales past 5Y 57.32% Gross Margin 38.54% 52W Low 17.98% ATR 0.72
Employees 17500 Current Ratio 2.02 Sales Q/Q -5.93% Oper. Margin 14.51% RSI (14) 41.93 Volatility 3.70% 4.15%
Optionable Yes Debt/Eq 0.00 EPS Q/Q -70.90% Profit Margin 11.23% Rel Volume 0.46 Prev Close 14.66
Shortable Yes LT Debt/Eq 0.00 Earnings Mar 24 Payout 0.00% Avg Volume 23.45M Price 14.69
Recom 3.30 SMA20 -7.96% SMA50 -5.38% SMA200 -39.66% Volume 8,456,537 Change 0.20%

The Competition:

Price

Market Cap

Revenue

Gross Margin

Net Income

RIMM

14.66

7.56B

19.80B

38.61%

2.22B

AAPL

513.04

478.34B

127.84B

42.41%

32.98B

GOOG

607.94

197.66B

37.90B

65.21%

9.74B

NOK

5.56

20.63B

51.16B

29.38%

-1.54B

AAPL - Apple Inc.

GOOG - Google Inc.

NOK - Nokia Corporation

RIMM's one-year EPS growth rate is 46.92% and five-year EPS growth rate is 58.34%. This is substantially higher than its Communication Equipment Industry at 15.58% and 6.96%. Given this information I was curious, why so much volatility with this stock?

The Good

Research in Motion has compelling fundamentals, expanding margins, and a strong balance sheet with no debt on its books! The company has a dominant position in the PDA market, leveraging the popularity of wireless email and strong brand recognition in the enterprise segment. Another persuasive factor working towards this company's advantage is its strong patents on wireless data solutions. RIMM has faster than expected market expansion with much more growth opportunity despite being the leader in wireless email enterprise solutions. The company offers a stable, intuitive, and best performing platform in the industry as the only provider that controls all key elements of its system.

After the stock lost almost 80% of its value, the company made a desperate change to management that could benefit the company. On January 23, 2012, the company announced the appointment of Thorsten Heins as its new president and CEO. Former co-chair and co-CEO Mike Lazaridis was to become vice chair of the board of directors.

The Bad

To start off this argument Research in Motion has an increasing dependence on the carrier channel to capture new subscribers. This is not a good position to be in with all of the aggressive competitive threats. The company has several pricing pressure due to competition from new entrants, emerging competition from standard-based hardware vendors (Nokia (NYSE:NOK), Motorola (NYSE:MMI), Samsung, H-P (NYSE:HPQ), and others), and device agnostic software vendors (Microsoft (NASDAQ:MSFT)). RIMM has negative hardware sales and market share could further decline as new competitive devices and server offerings enter the market. Currency risks are also a major point of concern since a substantial portion of operating cost is denominated in foreign currency and if the US dollar depreciates, it could lead to margin compression.

Also, Research In Motion Limited is engaged in a number of legal battles, which can negatively impact the Company. In March 2006, RIMM and NTP signed a definitive licensing and settlement agreement where RIMM paid NTP $612.5 million in full and final settlement of all claims against RIMM and for a perpetual, fully paid license going forward. Further, In August 2010, India's Ministry of Home Affairs announced it would implement RIMM's proposal for access by law enforcement agencies and not long after the Indian government threatened to ban RIMM's consumer e-mail services. RIMM will continue to struggle in North America as carriers promote the iPhone and discount LTE devices and data plans to drive business. Verizon Wireless (NYSE:VZ) is promoting the Motorola RAZR in a buy one get one free promotion and is offering 4GB of data for the price of 2GB with an LTE device and T-Mobile along with Sprint offer unlimited data. It seems that iPhone and Droid have saturated the market especially in the U.S. making BlackBerry obsolete.

Furthermore, the 10, 21, 50, and 200 day moving averages of $15.54, $16.03, $15.54, and $24.7 respectively all show a down trend indicating a bearish chart pattern.

Conclusion

RIMM is in a transition period as it ramps up new devices and realigns its cost structure. What it does from this point is crucial to the company's success. However, given this shaky information I would not recommend taking this sort of gamble on a highly volatile stock with no guarantee for future returns. Given this information I think it is an easy consensus to say stay away. I do not think this stock is in a rut and will ease its way out, in fact I think the price will drop even lower over time. Even though this company has no debt on its books I think the debt will compile sooner than later in an effort to drive innovation and revive the company. I am not saying this company is all bad and stay away at all cost, I am saying I would stay away at these prices. There may be a buy opportunity, but I do not see that happening for quite some time. Given all of these factors I would recommend this stock as a sell.

Source: Research In Motion: Buy Or Sell?