RIMM. Tell Me Why I Shouldn’t Buy It.

Surprise!!! Bad earnings, again. It closed at just over $15 and is now just under $14, after hours. Both my dad and one of my best friends say short it. Everyone I know and have heard talk about RIMM say short it. I’ve heard comparisons to Motorola (that’s just mean, by the way). People look at RIMM likes it is the plague. And honestly, I don’t really blame them. I dumped my blackberry for an iPhone, which is better across the board except for typing and battery life. But, at this point, the move down is just too much.

Here are some key stats I’m looking at, both the good and the bad.

Good:

Ownership (insider 10%, institutions 50%). Ownership seems solid. CEOs taking $1/year in salary. Insiders own a huge chunk of the company. You don’t think they are going to try to maximize that wealth?
F P/E of 3.87
P/B of .79
Cash/Share 2.21
ROA 23.5%, ROE 33.5%,
Superb margins. Gross 42.8%, Operating 18.8%, EBITDA 24%
Turnover solid across the board
Everyone thinks the company is going to single digits and lower
NO DEBT (RIMM looks like the ideal levered recap/LBO)
Cash flow from operations still high and strong (Although nowhere near as high from peak)

Bad:

Technical freefall
Negative growth
Loss of market share in the U.S.
Continual earnings disappointment
A lot of cash spent on investments recently. Whatever they are investing in better work.

I’m sure I’ve missed some factors. But what I think we are seeing here is too much doom priced in. Effectively, I think RIMM is being priced in oppositely to how it was when it was trading at $70+ and everyone had to buy it. I believe the long term risk reward is at a decent spot, and I am a watcher to buy for the long term (few year horizon).

So my question to you: is RIMM a value buy here, or is it a value trap?

If anyone is interested, I may put together a DCF on RIMM over my winter break. If I get really, really, really bored. But only if there is demand.

7 Responses to “RIMM. Tell Me Why I Shouldn’t Buy It.”

djmarcus
December 16, 2011 at 1:49 am

Would very much appreciate any and all feedback. Even if it’s to call me an idiot.
huh?
December 16, 2011 at 1:59 am

I’ve been waiting to buy rimm for ages. The drop is far to overdone at this point. That said, I can’t bring myself to buy a falling knife. I prefer to wait for it to hit the floor first.
Yogi & Boo Boo
December 16, 2011 at 3:31 am

Trap. Stay away except for quick trade. See $NOK for an example of another failed mobile company.
- DJMarcus
  December 16, 2011 at 3:44 am
  
  Maybe from a products perspective. Not sure what the books looked like a few years back, but RIMM >>>> NOK financially. Much better margins, returns, profitability, no debt, “cheaper (based on F P/E)”… and more.
  
  I’m going to try to take a look at their books from their heyday when I have some time, but any idea on their financials from back then?
  - Yogi & Boo Boo
    December 16, 2011 at 3:53 am
    
    DJ, No I wasn’t following them back then. We have many (X) multiple mobile devices in the house and professionally. Since $RIMM is delaying the launch of their new products until the second half of next year, they have effectively killed any chance of moving into the US consumer market.
    
    When $NOK first stumbled I had considered buying in. The company seemed to be in a similar situation. They continue their slide.
Chris
December 16, 2011 at 5:01 am

Android + Apple > RIMM

Q.E.D
dchsn6
December 17, 2011 at 9:25 pm

This post which I did should interest you: http://ibankcoin.com/dchsn6/2011/12/17/buyrimm/