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At What Point Does Research In Motion (RIMM) Become Cheap?

June 20, 2012 | About:
Intelligent Speculator

Intelligent Speculator

6 followers
Research In Motion (RIMM), the Canadian technology jewel, has been losing its luster very quickly for the past two to three years as it continues to fall behind heavyweights Apple (AAPL) and Google (GOOG). I wrote about the fact that it was a falling knife. I’ve made some wrong calls but I was certainly right about calling RIMM as a falling knife to avoid while saying that BP (BP) and Netflix (NFLX) could be trusted. So RIMM continued to fall.

What Is $RIMM Worth?

I’ve been staying far away from RIMM in the past few years. I’ve had it near the bottom of my 2012 Tech Stock Power Rankings. Despite that fact, I’ve been scared of shorting the stock for fear of a rebound or worse, an acquisition. It’s one of those stocks that I’ve stayed away from trying to short. Thus, I kept looking at the stock fall, unable to profit from it.

The problem with valuing for RIMM is that I have to say that it’s beyond my ability to value a stock like this. Why? I trade based on P/E ratios or on future expected P/E ratios. In RIMM’s case, I don’t expect the company to become profitable anytime soon, if at all. Just look at the trend in terms of revenues and earnings per share.

The company has already confirmed that it would be losing money in the very near future. Its market share is shrinking very quickly with no end in sight as it is now losing many of its more loyal, corporate clients.

So What Is RIMM Worth?

The company has tons of assets. It has clients, it has models, it has patents and phones that could be used. Some companies such as Facebook (FB) or Microsoft have been rumored to have interest but it’s far from a done deal. I don’t have any doubts that RIMM has many valuable assets, as well as what will soon be growing debts. Is the net worth $1? $2? $10?

Rating: 1.8/5 (17 votes)

Comments

Alex Garcia
Alex Garcia premium member - 2 years ago
The same could be said for Nokia, if i'm Microsoft (MSFT), I'd take a real hard look at RIMM as I believe there is a franchise there. Only problem, RIMMs OS is different than the Windows OS.

-Alex

http://www.earningsyield.net

p.s. anyone know somebody with a Windows Mobile OS?
kfh227
Kfh227 premium member - 2 years ago


Problem is that RIMM has no debt and generates billions in free cash flow each year. Even last quarter they had FCF of $500m or so.

Problem with RIMM is that no one knows where it will be in 5 years. Thing is, it is trading for just about what it's patents are worth. That's why it is having trouble breaking below $10.

Also, many peopel thinkRIMM is dad. But if you consider India with 3x the population of the US and read about RIMM in india, there is a market there for RIMM. Apple will have trouble gaining ground there unless they start producing lower cost products. So, it's basically RIMM and Droid in India with a slice given to Apple.

PS: Long RIMM.
ramands123
Ramands123 - 2 years ago


Why would one buy RIMM if you get DELL for 6 times the earning with huge free cash flow. Micheal Dell has clearely laid out and executed his strategy focused on enterprise. A big portion of its revenue comes from enterprise software and they are big in health care cloud and storage space.

All they have to do is continue being a cash cow and keep buying thier stock back. In 3.5 years at this price they will buy back entire company. Ofcourse that wont happen so stock has to go higher.

It is as cheap as RIMM with not so much head winds from Apple.
LwC
LwC - 2 years ago
"The problem with valuing for RIMM is that I have to say that it’s beyond my ability to value a stock like this. Why? I trade based on P/E ratios or on future expected P/E ratios."

What does trading "…based on P/E ratios or on future expected P/E ratios" have to do with "value investing", which is the presumed subject matter of GuruFocus? Why is this kind of stuff being published on GuruFocus?

superguru
Superguru - 2 years ago
Based on today's news it gets even more unlikely for RIMM to survive as an independent company.

As major investors in RIMM, what options do Watsa and Chou have?

1) Sell and take loss

2) ride it down

3) Hope that some buyer will emerge

4) Take it private.

5) wait and hope for a turnaround

When investors like Watsa and Chou invest in RIMM, is it not pretty much gambling or speculation?

(Seth Klarman also invests in such companies.)

Is there something Gurus are doing like hedging, or owning Sr. debt etc which protects them against losing everything in case of bankruptcy or fire price sale?

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