Research In Motion (NASDAQ: RIMM) (TSE: RIM) is making its way higher under everyone's radar. The stock is up nicely from its $45 lows in September, where pretty much every investor completely wrote off the tech company from their portfolios. Bearish news from the media, and fears that RIM lost its luster caused an unforseen selloff for the high powered growth stock. Since the lows, RIM is up over 50%, and now trades at approximately $69 on both the US and Canadian exchanges.
Yet what's even more interesting is how drastically the stock is undervalued. RIM trades at an current PE ratio of 11.88 times earnings even when the company is growing at a 25% clip each year. Revenues actually grew at just over 40% in the last quarter. For illustrative purposes, let's compare RIM's earnings with that of another large company, Barrick Gold. Barrick is an aged gold company - the largest gold company in the world. But let's face it, Barrick will at some point in the future run out of gold and go bankrupt. Yet people still buy the stock. Why? To capitalize on the profits of course. The same goes for RIM. Most companies don't last forever, but we buy them when they are growing, and sell them when they begin to decline. With RIM though, people believe that the company is already poised for bankruptcy. Here are 3 simple reasons why they are wrong.
1) BBM (BlackBerry Messenger), the addicitive application that keeps people collaborating with each other in realtime. This is especially useful for employees of corporations, but consumers have adopted it as well and have remained loyal to the brand because of it.
2) New products - RIM is just getting started. They are growing at a rapid pace even without their new PlayBook device. When the PlayBook is launched later this year, its seamless BlackBerry compatibility will allow consumers to purchase one of the only tablet devices out there that tethers directly to their phone. This saves money. Corporations and regular individuals like that. RIM also continues to grow by revamping and adding new models to its smartphone lineup which has continued to propel earnings higher to date.
3) Growing markets - Some people believe that Apple will completely crush RIM. However the global smartphone market is growing so fast that there is room for many players in the game. Research in Motion is expanding rapidly in new geographies, establishing its strong brand name for quality.
Going back to the Barrick Gold example, let's compare growth rates and earnings. Barrick Gold is growing at around 8.5% per year, has earned $896M (record earnings) in the last quarter, and has a market capitalization of $50 billion. Research in motion has similar earnings of $911M in the most recent quarter (also a record), however RIM is growing at a rate of about 4 times faster than Barrick is growing. Yet RIM's market cap is just $36 billion. One would expect RIM to be valued higher than Barrick Gold with its massive growth potential. Barrick Gold's business depends highly on fluctuating gold prices, whereas RIM's business is aided by the global adoption of mobile phones.
Clearly RIM, which has slowly been moving higher in share price over the past few days, is undervalued at current levels. There's no telling what the future holds, but the BlackBerry maker is well positioned in the market. RIM may even be better than gold.
To read the RIM stock report click here.
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