Don't panic just yet! Investors with a longer time horizon will be rewarded. The allocation of RIM (RIMM) shares in my clients' portfolios is very high. Some portfolios are almost 25% RIM. This may seem quite overboard by traditional metrics, however I'm not worried one bit. Here's why:
The delay of BlackBerry 10 has beaten down the stock over the last few weeks, due to the shortsighted view among many money managers that the stock is dead money for the next few months while we wait for BB10 to be released. This seems a bit overdone considering the current valuation (more on this below). Once the release date gets closer, the stock will start to tick upwards in anticipation. You may even see a spike if the CEO can come out and say that the release date has been confirmed for Q1 2013 and has not been delayed any further. Investors are lacking confidence in management and any signs that things are getting back on track will be welcomed.
It is clear from the current stock price that investors are valuing the company's future cash flows near zero. Investors don't seem to care about the current book value of 18.61/share. Book value includes such items as intangible assets that may not easily be sold in to cash on short notice at a good price. So it does make sense that the stock can trade below this level. However, even if you remove the value of intangible assets, and property, plant and equipment, and half of their inventory, the "tangible book value" still comes out to about $6 per share.
Based on this there is not much downside left as we trade today just below $7. One idea for you options players out there is to sell 6 strike puts. We call this an asymmetrical trade; there is not much downside from here as the fundamental value will prevent the stock from falling much further. On the other hand, the stock could go up substantially if there is any shred of good news.
Another way of analyzing this company is to look at the enterprise value. Currently the company has about 2.0 Billion in cash and equivalents. This may not seem like much compared to the enormous cash hoard at firms like Apple (NASDAQ:AAPL), or Cisco (NASDAQ:CSCO), but on a relative basis comparing RIM's cash to RIM's very small market cap of 3.6B, it is really impressive. If a buyout firm bought all of RIM's shares at the current market price, the buyer would assume all of RIM's cash (2B) and all of their debt (zero). What this means is that a buyout firm could effectively purchase RIM for (3.6 - 2.1) = 1.5 Billion. Not a bad deal considering RIM has a 1B of inventory, 2.7B of property, plant and equipment, and 78 Million customers. Surly Amazon (NASDAQ:AMZN) or Facebook (NASDAQ:FB) are thinking about what price they would be willing to pay for RIM to jump start their own smartphone offerings.
Remember how lots of "would be" iPhone 4 buyers put off their purchase to wait for the upcoming iPhone 4s. Current BlackBerry owners who want to upgrade are simply waiting for the next version to be released. Once that happens there will be a surge of buyers upgrading to BB10.
Take a step back and take a deep breath. RIM can't go out of business any time soon (at least not before they release BB10) because the company has no debt. Bide you time and accumulate some shares now and you should be well positioned as the release date gets closer.
Disclosure: I am long RIMM, CSCO.