It’s Time to Sell RIM, Stock’s Too High Says Analyst
Richard is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
For beleaguered tech giant Research in Motion (NASDAQ: BBRY), it’s beginning to look more and more like the “feel-good” turnaround story that it hopes for just isn’t going to happen – at least not as quickly as investors would like.
Nonetheless, RIM deserves quite a bit of credit for its recent rebound - this much needs to be said. After all, the company was left for dead just a few months ago. But since reaching the bottom at $6 per share, the stock has doubled; no one saw this coming. Now, investors are stuck wondering about what to do next.
Take the Money and Run
RIM has been doing a great job selling the potential of its new BB10 operating system, due out in January. Investors have piled into the stock with joy. But Wall Street isn’t buying it, at least not to the extent that investors would like.
Even though investors want to forget RIM’s history of self-inflicted wounds, many of which caused Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) to encroach on its territory and steal its business, analysts on the other hand have excellent memories. For this reason, some have taken the “wait-and-see” approach with the launch of BB10. I can’t blame them.
On Monday, Mike Walkley, analyst with Canaccord, cut his rating on the stock to Sell from Hold. Walkley asserts that the recent run in the shares are without merit and the stock lacks support. While suggesting that BB10 will be a “dramatic improvement” for the company, Walkley doesn't think there's sustained momentum. Essentially, Walkley has echoed the same points that I made just a few weeks ago.
There’s just too much that needs to go right for shares to work over the long term. And even if everything fell into place for RIM with BB10, it still wouldn’t be enough. Complicating matters further is Microsoft’s recent release of Windows Phone 8. This makes it now three operating systems with which BB10 must compete.
On the other hand, working in RIM’s favor is that Apple’s patent war with Samsung has caused some concern among phone manufacturers that are looking for an Android alternative. From that standpoint, RIM has a decent shot at capturing market share; except it won’t be nearly enough to matter.
The fact remains, even if RIM’s blueprint is executed as planned, the company would still need for Apple, Samsung and now both Microsoft and Nokia to stumble along the way. It’s just not going to happen.
Meanwhile, investors have to start considering how much higher the stock can go after having doubled over the past two months. BB10 is certainly a step in the right direction, but it’s not going to immediately reverse all of the mistakes RIM has made over the past three years. Essentially Walkley’s point is simple: Take the money and run.
No More “Less Bad” Quarters
In fairness, the success of BB10 won’t be known until the company reports on its performance for at least two full quarters. So rushing to judgment may not be the right play here. But recently, RIM has been notorious for what I call “less bad” quarters.
For instance, in the company’s most recent earnings announcement, revenues dropped by over 30%. However, it was an improvement over the 40% drop that the street had expected. Similarly, the company “beat” estimates by reporting a net loss of $0.45 per share versus an expected loss of $0.46.
Investors applauded these results, sending the stock higher. It’s hard to imagine a company of RIM’s stature which has been so high up on the mountain and has now fallen to the extent where low expectations are cheered. I want to give RIM the benefit of the doubt; except the company has done very little to convince the street that it is deserved.
Bottom Line
RIM does not have the recent track record to suggest that the launch of BB10 will be the success story that investors hope. Still, I’m willing to credit the company for having finally announced a release date, which in some respect is a small victory, particularly after having already delayed the launch twice. But for now, the Street is not buying it. For RIM’s sake, it needs to hope that consumers do.
rsaintvilus is long AAPL and has no positions in the other stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!
