Diary of a Financier

Research In Motion: a Value Play!?

In Capital Markets on Thu 17 Mar 2011 at 17:45
  • RIMM’s valuation makes it an incredible value play.
  • We’ll take a small stake if indicators look fine around $58.75, buy on breakout above $70.
  • Earnings announcement 3/24.

Yea, I said it.  Blackberry godfather Research In Motion (RIMM) is a value stock.  This is an infamous growth stock that spent much of the 2003-09 wonderyears trading at a healthy premium PE around 40.  Except for a hiccup in 2009, EPS growth has justified it too:

RIMM EPS & PE

I exchanged some thoughts with a partner on March 11:

You’ve got a company with a Return on Capital north of 30%.  You ask yourself what is the likelihood of them continuing to grow at such a clip?  Unlikely… but PE is at an alltime low!  It’s not priced for any kind of growth. RIMM is a buy.  Earnings yield of like 9.83% vs. 10-year Treasury at 3.6%.  That’s valuation is not a growth stock, it’s value.  They have no trouble generating cash flow, and it’s priced at around 1.5x revenues.

You have to wait for your entry though: I wait to see how it reacts once it gets down to $60.  You’ll have technical indicators testing support, and the chart could breakdown.  When you get into the $58.75 range, you start taking a stake.  You put on a stop at $35, and accumulate in that range.  I don’t see it breaking below $50 anyway (see LT trendline support).

If indicators hold support (MACD > 0, MFI > 40) you’re looking at a strong bullish outbreak to the brink of that 2008 gap @ $76-77.

RIMM daily- looking for indicators to hold support, then accumulate in the 58.75 range.

That’s really all that needs to be said, I like.  I’ll be on the earnings call March 24.

–Romeo

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