Is Research In Motion’s Stock Finally a Buy?

With shares of Research In Motion (NASDAQ:RIMM) now trading at around $8.90, is the smartphone maker a BUY, a WAIT and SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Research In Motion stock went on a steady four-day climb after the company announced on October 31 that its much-delayed BlackBerry 10 operating system had finally moved into the testing phase with more than 50 carriers.

In fact, on Friday, November 2, shares of the company crossed their 50-day moving average and soared 9.78 percent to close at $8.70. The company also saw above-average volumes — with 39.51 million shares exchanging hands, 11.95 million shares more than the daily average. However, analysts are still unimpressed, pointing at persisting problems. “Our supply chain checks indicate still sluggish demand trends where continued weakness in developed countries is offsetting emerging markets strength in Southeast Asia and India,” Sterne Agee’s Shaw Wu wrote in a research note the same day.

Wu added that RIM was losing high-profile customers quickly and even though carriers may be ready to welcome a third big player to take on the new Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) smartphone duopoly, the ultimate answer is held by consumers.

Earlier this year, there had been buzz that RIM was exploring buyout or licensing options. The release of the new software, BB10, and its accompanying handset has already been postponed twice this year and the new launch date is scheduled for the first quarter of next year. Chief executive Thorsten Heins, who took over in January, has been a loud advocate for the company’s healthy future, but it will take some more real action to convince analysts and investors.

H = High Quality Pipeline is Questionable

It is no secret that the near-term future of RIM depends largely on the one forthcoming product in its lineup: the BB10. The company has repeatedly stressed on the fact that it is trying to reinvent itself through the new operating system and compete better with Apple and Android devices by offering a faster and smoother user interface, a better platform for apps, a new web browser, and improved social networking integration. It also said that the new handset will have a much-improved camera.

However, making a deep enough mark in the market is another matter, and there are worries that the company may have already bled too much for it to be on top of its health ever again. RIM said in its latest earnings report that it shipped 7.4 million smartphones, down from 10.6 million in the year-ago period. In contrast, Apple sold 26.9 million iPhones in its last quarter, up from 17.1 million a year ago. Android already has a close to 75 percent share of the global smartphone market. The competition may have become too strong.

T = Technicals on the Stock Chart are Not Strong

Though RIM’s stock price is 12.72 percent above its 20Day Simple Moving Average and 20.10 percent above the 50Day SMA as of November 5, it is a deep 15.84 percent below the 200Day SMA. In more depressing details for the company, since the beginning of 2012 the stock price has been in a downward trend. It is now down 38.62 percent year-to-date and down 53.08 percent year-over-year.

E = Excellent Relative Performance to Peers? Not Quite.

Many investors favor Return on Equity as a key metric to how well the company is operating. While RIM’s ROE of a negative 6.36 percent is woefully short of rival Apple’s very healthy 42.84 percent, it is still better when compared with in-trouble Nokia’s (NYSE:NOK) negative 42.74 percent.

Operating margins are also critical for stock evaluation. RIM returns a margin of a negative 5.45 percent, compared to 35.30 percent for Apple and a negative 11.50 percent for similarly troubled Nokia.

T = Trends Support the Industry in Which the Company Operates

Smartphones are the undoubted product of the present and the future. According to a recent report, the number of smartphones being used around the globe crossed 1 billion in the third quarter of the year — 16 years after Nokia introduced the Communicator. The next billion won’t take as long. In fact, it is likely to arrive as soon as in 2015. What does this mean in dollar terms? According to Bloomberg, the smartphone market was already worth $219 billion last year, and is primed for fairly rapid growth.

RIM’s position as one of the smartphone pioneers and its continuing efforts to find its niche back in the market will help the company in this booming industry. However, just how big a piece of the pie it can stake claim to is the key question. From all accounts, the challenge is a little too steep for the BlackBerry maker.

Conclusion

RIM was once a commanding leader of the smartphone market, with a matchless hold on the enterprise sector and an envied loyalty base. However, it failed to improve its aging BlackBerry devices in time, entirely missing out on the massive technical and user experience upgrades Apple’s iPhone and devices like the Samsung Galaxy line were ushering in. Very quickly, its market share fell as sales slumped, and profits and the company’s share price took a combined plunge.

While RIM and its few bulls are hopeful that next year’s big launch will put the company back on its feet, it may be too little, too late for a company whose fortunes have nosedived. As Matthew Thornton of Avian Securities said about RIM in June: “It’s like watching a puppy die. It’s terrible.”

Research In Motion looks like a STAY AWAY based on the key metrics above.

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