Research in Motion Stock Set for Upward Motion

Research in Motion (RIMM) announced its quarterly results last Thursday and in the wake of that result its stock lost 27% of its value. It missed the estimates by one penny for the current quarter and mid-range of its revenue expectation for next quarter is slightly below the consensus. And seems like it spooked investors.

I consider it a big investor folly, which is of course abetted by equally un-analytical analysts on Wall Street who can be found there in plenty on the streets. In fact I am surprised that even after seeing the mess on Wall Street and wrong decisions of these same analysts over the years, investors are willing to buy their theories. For me, mentioning the mess on Wall Street gives another lens to look at RIM's results.

Even with financial institutions in total disarray (which some people think are RIM's primary customers) RIM was able to post almost 75% increase in its earnings for the last quarter. That's no less an achievement in itself and it clearly shows two things:

1. RIM has been very successful in reducing its dependency on the growth coming from corporate accounts. While corporate accounts are growing, RIM is more successful in capturing the retail customers than any other competitor.
2. Even with retail consumers, RIM is able to hold its price for the devices. That means if its spending would have remained constant then it would beat profit margin estimates for the next quarter also.

And here is the catch. To repeat the last point again, its profit margin for the next quarter is lower not because its devices are selling for less but because it is investing more for the future growth of the company. Is that a bad thing, especially in this current competitive scenario? Absolutely not. But when was Wall Street concerned about the growth and welfare of any company? Never. In fact most analysts on The Street don't understand the "T" in technology and for them all the information lies just in the numbers.

Without being too repetitive, I must advise the average investor that just a look at Wall Street's current situation will say that numbers never tell you the whole or true story. Most of the time we should be ready to ignore the numbers and look at the underlying values objectively. And by doing that, I see that RIM is making smart choices now by investing in its people and technology to better equip itself  for the new innings in the smartphone market. So while its numbers might be skewed a little bit, its future in definitely on a straight progress path.

Most of the market research and RIM itself have predicted an extraordinary growth rate of almost 40% for the smartphone market. RIM's leadership in that market has enormous growth potential for the company. And it is preparing itself for that explosive growth by investing in its future right now.

I personally like companies which have a vision. RIM is already going to launch three new devices in US market in the next few months including a touch screen smartphone.

So my advice to the investors is to buy the stock at current levels by taking the advantage of current market nervousness. At a price level of less than $80, I think RIM's stock is a steal as its current P/E ratio represents a significant upside for the stock. My price target for it is $130 in the next 8-9 months. And any improvement in current conditions of corporate market will further reduce the time-frame for my target price.

RIMM is all set for a very good investment return at current levels and mid to long term investors should hop on the boat before they miss it.

Stock position: Long.

Comments

[dips:]

Having read the conference earnings transcript I was myself questioning if I got it right or I am just too stupid.
RIMM persons said quite a few times that they were eavily investing for the coming (near future)...but if for the analysts a few quarters are too many to wait for results, they may be living probably in some special world where money can just be printed out of fresh air.

Well, I am buying "eavily" with bull but and even some naked put around 60$, hoping to get assigned.

2008 Sep 29 10:14 AM

[Love Rimm:]

THANK - YOU . Im glad to still see some intellegence pervades among a few people and colomnists.

2008 Sep 29 11:31 AM

[smoh:]

Hi there,
I have been following this stock for the past 2 years. I have bought and sold and bought and sold several times. and every time I sold, it would go even higher. I believe many analysts are looking out for themselves . Ever notice how 10 analysts say the same thing, then 1 says the opposite . The market reacts to the single negative. Many analysts over speculate and are not accountable for what they say.
I believe that your analysis hit the nail on the head. RIM has been one of the most resilient stock in the market. Management treats their workers right, rewards initiatives, donates a lot of money to the university, has a lot of charitable organizations receiving thei money... their management beleives that keeping people in touch with one another is the way to world peace, and you know what, they are intersted in buying a hockey team from the US !
It will be one of the fastest rebounders ... go heavy weight

2008 Sep 30 02:14 AM

[kotika98:]

the reason stocks like RIM tank after a miss is that the well being of the executives depends heavily on the company making its numbers. when reporting time comes every possible accounting trick will be pulled out in order to make the numbers. In case its still not possible to do it, even by a penny, it means that things have significantly deteriorated. Sure, its still growing, just not fast enough to justify a 40 PE multiple. That all folks!

2008 Sep 30 09:11 AM

[kotika98:]

yes, and where is all this naivete coming from about "investing" for the future? That seems just like the socialist notion that companies should think of the long-term, and not maximize short-term profits. If RIM were really increasing its R&D expenditures voluntarily right now, it woul be in anticipation of some major product cycle - and i just dont think that is the case! More likely they have been capitalizing some of the product development and launch expenses, and now decided that its time to start recognizing those expenses. To the naked eye that would look like an increase in R&D...

2008 Sep 30 09:19 AM

[OPTIONSTHIEF:]

Ditto on Mr. Thank you's comments.. I can't believe all these ANALysts and the investors out there slammed this stock down this far... yeah yeah, i know the short guys and such run it down but come on, everyone knows this company has their act together... I do get a get out of the analysts and bloggers who run their mouth and start riding piggyback today on downgrades.. what a joke. Anyone who knows RIMM knows what to do now... THATS THE BEAUTY OF OPTIONS.

2008 Sep 30 09:40 AM

[Rimmer:]

Bottom Line:
Company is investing in Marketing and Advertising.
Has a plus as a "Corporate" level phone.
Revenues are growing.
Has grown More than 2100 % during last 8 years.
Many new products in line to be launched, which ofcourse makes R&D and other overheads catching eyes, but this is positive for the company growth.
Has proven technology and platform.
Management owns the stock.
All these factor make it an attractive stock,
Current stock price is an overreaction to the market nervousness, this will come back to $80 in about 1-2 months and about $120 - in a 4 month time frame,

Postion : LONG

2008 Oct 02 09:50 PM