Tuesday, February 7, 2012

Research In Motion

I do not own this stock (TSX-RIM, Nasdaq-RIMM), but I used to. I must admit I made a lot of money on this stock. But when I made money it was a rising star. Now, people view it as falling off a cliff. This stock has a financial reporting date of the March 1st. However, no one believes that the financials for March 2012 will be as good as for 2011.

Investors were making money on this stock until last year. Since then stock prices are down around 75%. They have a very low Price/Earnings Ratios around 4.04. However, P/E Ratios are set to expected future earnings and investors think that are going down. They are not wrong. Earnings so far in this financial year, over the past 12 months are down around 35%. Past growth does not count if it looks that future growth will not be there.

This stock has always had great debt ratios. The 5 year median Liquidity Ratio is 2.36 and the 5 year median Asset/Liability Ratio is 3.64. The 5 year median Leverage and Debt/Equity Ratio at 1.28 and 0.28 are also very good. However, this will count for nothing if there is going to be no future growth.

I often used past performance to judge a stock. However, this is fine with businesses in stable environments, but does not work with tech stocks. Technology may be fast growing, but it can be very unstable. The one favorable item is that they do have cash. However, even this can change rapidly when growth stops.

The insider trading report is rather interesting. There is $134M of insider selling and $50M of insider buying. However, all insider selling was before last year (prior to mid-year) and all the insider buying is this year. Except for the CFO, insiders have more shares than options. However removed a couple of officers from this tally, and then the rest have more options than shares. There are a lot of insiders with options and Rights Deferred Share units.

So what do the analysts say? When I look at analysts’ recommendations, they are Strong Buy, Buy, Hold, Underperform and Sell. The vast majority of recommendations are Hold, but there are more Underperform and Sell recommendations than Buy recommendations.

One analyst remarked that it is selling at a deep discount to normal valuations, but that growth is decelerating very quickly. An analysts with a Hold recommendation said that he wants to see how the new team works out. Everyone agrees the next few quarters are going to be tough for the company.

My spreadsheet shows that this current price is very low. I get a Price/Earnings Ratio of 4.04. This is very low in itself. The stock has low and high 5 year median P/E ratios of 10.71 and 35.26, a very wide range. I get a Graham price of $42.47 and the current price is 60% below this. Until last year, the stock price never came near to the Graham Price, let alone below it. However, since the Graham Price takes into consideration earnings, you can expect Graham Price to drop.

I get a 10 year Price/Book Value Ratio of 4.45, a rather high ratio, but typical of growth companies. The current P/B Ratio of 0.86 is just 20% of the 10 year ratio. Also, it says the current stock price is below the book value of the shares.

Personally, I am not currently interested in this stock. I think it is too risky. Besides, I already made money on this stock, why risk losing that in these very uncertain times for this stock.

Research In Motion is a leading designer, manufacturer and marketer of innovative wireless solutions for the worldwide mobile communications market. Through the development of integrated hardware, software and services that support multiple wireless network standards, RIM provides platforms and solutions for seamless access to time-sensitive information including email, phone, SMS messaging, internet and intranet-based applications. RIM technology also enables a broad array of third party developers and manufacturers to enhance their products and services with wireless connectivity. Founded in 1984 and based in Waterloo, Ontario, RIM operates offices in North America, Europe and Asia Pacific. Its web site is here RIM. See my spreadsheet at rim.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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