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Jonathan Poland
Jonathan Poland
Articles (207)  | Author's Website |

Will RIMM Bounce Back In 2012?

January 03, 2012 | About:

I think it was Peter Drucker who said there are really only two aspects of business: innovation and marketing. Research in Motion (RIMM) is in need of both and 2012 may be the year they get it.

The company has introduced a new operating system, Blackberry 7, and is releasing new phones coming out all over the world. People still like the full keyboard feature and the company now has over 75 million users worldwide, up from 55 million in December 2010. Who cares if Android and Apple are growing faster if Research In Motion can keep pounding out cash? The entire industry is getting bigger.

Last March the company's stock was traded for $69.80 per share before making the long slide down. Today the stock is up a buck to $15.60. However, how much money will it need to earn in 2012 to justify this price?



As I see it, they could earn $4 a share this year without much effort, but let's look at the stock from a long-term financial standpoint and ask some very important questions.

1. Has the company been consistent?

Yes! While RIMM doesn't have 10 years of profits yet, they have literally blown up its sales and earnings like a helium balloon. In 2002 the company did $292 million in sales losing $28 million. Last year, RIMM did $19.9 billion in sales, earning $3.4 billion.

The income statement shows us a lot of great aspects from a fundamental standpoint.

- High Gross Profits (50%)

- Low SG&A Costs (15%)

- Low R&D Costs (15%)

- High Net Profit Margins (15%)

Of course, the company has been in trouble because they haven't spent enough money on research and development to bring new phones to market as quickly as their competition.

2. Is the company piling up cash?

Yes! The recent quarterly balance sheet shows RIMM with $1.3 billion in cash and zero long-term debt. Since 2002, their cash pile has grown 280%. The net current asset value of the company is at least $3.55 billion, which is still half the market cap. A closer look at their financial statements shows RIMM still has the ability to continue piling up cash based on its ability to turn over inventory at fairly high rates. Plus, into the future, financial engineering could boost the stock price via share buybacks.

3. Do they have high returns on capital?

Yes! RIM historically earns well over 20% a year on their capital (ROE or ROA) and has seen an increase in its book value by 950% in the last decade. It has been able to do this by keeping capital expenditures under 50% of their net income, allowing retained earnings to grow.

These and other factors have made RIMM a stock value investors want to own, among them, Prem Watsa, who has over 11% of his firm’s assets in the company’s stock. This could be a burden or a blessing in the coming years considering he paid around $26 per share for his position. If you are a buyer at this price, by the time he’s breaking even, you’re up 73%. Other guru investors that own the stock include; Ray Dalio, Joel Greenblatt, and Donald Yacktman.

In closing, the question to answer is whether or not RIMM will be around in 10 years selling the same products. Ten years ago, I was a newly licensed broker with a hot new Nokia cell phone. Today, the hot phones are Android or Apple phones. That's the hard part about valuing technology, because while I think Research In Motion could double in value from its current price, over the long term who knows what could happen to within the industry.

Disclaimer: I do not hold a position in RIMM.

About the author:

Jonathan Poland
Thanks for reading! In 2001, I started my career in finance as a rookie stockbroker in a South Florida boiler room operation. Thankfully, the partner I worked for stuck to big name companies, not illiquid house stocks. A year later, I left for a better firm and started publishing investment ideas and managing money. It didn't take too long to realize that I was better at finding stocks than at finding clients. Today, after 15 years and 40,000 hours analyzing and forecasting the world's leading investments, I have developed a unique view into what works. Each month, I publish a premium report that highlights a single idea. If you want to know my best ideas, that's where you'll find them.

Visit Jonathan Poland's Website

Rating: 2.6/5 (14 votes)


Yhlbb - 5 years ago    Report SPAM
There is a reason why RIMM is so cheap now. If you keep looking at past data, it will deceive you. Just ask yourself, will a lot consumers feel "unhappy" if there is no RIMM devices to buy tomorrow?
Ranjitsudan - 5 years ago    Report SPAM
Positive way to look at the RIMM is that smartphone market is still growing at rapid rate with potential for greater penetration in asian market, which is growth region for RIMM (revenues are up yoy) - 60% of revenue for RIMM is generated outside North America and UK, so company has great potential if they get right product, at right time quickly for asian market.

Issue is US where market share is declining. I personally don't expect market share to decline in 2012 at such a rapid race, can partially be offset by growth in market outside US.

I believe company is prudently managed, financially very strong with no debt. I am pro current management, I think they are the best guys to run business. They have built $20B company ground up; is not an easy task. They will find way to transition RIMM through this turmoil.

I am long RIMM @ $15.30 with 2% allocation, projected allocation upto 3% over 2012.

JeanPierreSarti - 5 years ago    Report SPAM
I humbly say RIMM is dead man walking.

A bit of anecdotal evidence. A good friend recently made a trip to South America. What he saw is what I saw over Christmas in Southeast Asia. People want Iphones, Iphone knock offs and as a last resort Android smart phones. Two prime areas for smart phone growth no? This idea that the rest of the world still loves RIMM to me is three year old news. RIMM's smartphones have been a bust and so have their tablets. What future component of this company looks all that great? Anyway time will tell who is right...I sincerely wish you good luck.
Ranjitsudan - 5 years ago    Report SPAM
We both can feel different about product but numbers gives different picture - revenue from outside NA and UK grew 56% yoy, subscriptions grew to 75 million, 90% of fortune 500 companies use blackberry, RIM been voted as no1 smart phone in Latin and carribean region.

Rest time will tell.

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