Will Anything Save Research in Motion?
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I said will, rather than can, intentionally. Something can save Research In Motion (NASDAQ: BBRY), but the important question is will it. Some suggest that the media chooses the winners and losers; that writers, analysts, media and fund managers determine what the consumer will buy. I disagree completely with this cynical view. Quoting author and entrepreneur Seth Godin, "Ideas that spread, win." The consumer, empowered by the Internet and social networks, will ultimately decide the fate of Research In Motion. In this article, we will examine some catalysts for Research In Motion to see whether it can make a turnaround. I will also compare Research In Motion to troubled rival Nokia (NYSE: NOK).
Research In Motion has a market cap of about $4 billion, and is trading at about $8 per share. This is about one-third of the stock’s 52-week high. There is no trailing twelve month price to earnings ratio to report, and the price to earnings growth ratio is -1.28. Price to book is 0.46, making the company worth more dead than alive. Surprisingly, the return on equity is just -0.51%. Quarterly year-over-year revenue growth is -42.7% and the quarterly year-over-year earnings growth rate is not available.
However, in September the company reported revenues of about $2.9 billion, up 2% from the previous quarter, resulting in a net loss of $235 million, less than predicted. Research In Motion has no published debt to equity in Yahoo! Finance, but it does publish a current ratio of 2.06. However, the company reported a $100 million increase in cash and cash equivalents, closing the quarter with $2.3 billion.
Nokia’s market cap ($10 billion) is more than twice that of Research In Motion’s, and the stock trades at about $3 per share. Like Research In Motion, Nokia has no published price to earnings ratio. Its price to earnings growth ratio is 5.18, and the best that I can say about that is it is a positive number. Nokia’s price to book is 0.84, about double Research In Motion’s, but Nokia’s return on equity of -35.65% makes Research In Motion’s ROE look stellar. Quarterly year-over-year revenue growth at -18.7% looks superior to that of Research In Motion and quarterly year-over-year earnings growth mirrors Research In Motion as unreported.
Nokia’s debt equity and current ratios look solid, posting at 50.59 and 1.31 respectively. Nokia currently boasts an amazing dividend yield, driven almost entirely by the plummeting share price. That said, the trailing twelve-month yield is a whopping 10%. If we look at these companies through the lens of a discounted cash flow analysis, the companies are not so far apart. Research In Motion is undervalued by 105% and Nokia undervalued by about 99%.
Research In Motion received an unexpected back-handed compliment from vaunted Oracle (ORCL) CEO Larry Ellison, who suggested that it might be too early to write the company off. Is this a catalyst? Probably not … but it can’t hurt. In another story, Research In Motion saw its target price increased from $6 to $6.50 by FBR Capital. Concurrently, Cormark analysts upgraded it to a buy rating and BGC Financial increased its target to $7. This only highlights the uncertainty investors and analysts harbor with regard to the future of the stock.
This article suggests the possibility that many analysts may actually fear offering anything positive on Research In Motion. For whatever reasons, there is certainly a lot of buzz surrounding the stock and it made the top ten traders list on the TSX, recently up 7.15% on 5,781,777 shares.
Shifting our focus to Nokia, I have to concur with Brad Reed’s article, which suggests that Nokia may have erred in basing the Lumia 920 on the Windows 8 operating system. Not only has the phone failed to stir much enthusiasm, Microsoft (NASDAQ: MSFT) is quietly preparing to launch its own phone! Nokia’s CEO is saying publicly that this is not a betrayal, but any casual observer is likely to see it in that light. If anyone thinks Microsoft can be trusted, he needs to have his medium contact Steve Jobs.
In my view, Microsoft is using Nokia to break the ice with consumers, letting Nokia exhaust its marketing budget to get the platform off the ground and then Microsoft can step in with its phone and hit the ground running. Nokia, in another not so brilliant move, may be selling its headquarters. In my view, this broadcasts a negative signal to the market and customers alike. Credit Suisse drove another nail in the Nokia coffin by adding a break-up recommendation to its downgrade.
In my view, neither Research In Motion or Nokia is a good investment. What I will say is that, Research In Motion has better long-term prospects. It builds on its own platform with hat-in-hand to no one. It controls its own destiny and is not dependent on the whims of Microsoft, Google Android or any other operating system....only its own. We will have to wait and see if the Blackberry 10 inspires Research In Motion’s customer base and investors. If the BB10 is anything less than awesome, then Research In Motion is done.
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