On Friday, shares in Blackberry manufacturer Research in Motion (RIMM) crashed 11% in response to results, despite the fact that the company continues to grow strongly. The earnings per share in the year that ended in February was $6.34, compared with $4.37 the year before - growth of 45% - and the share trades today at a P/E ratio of 9. The collapse came because guidance for the quarter ending in May was considerably below forecasts. But the real reason is the market�s view that apparently, like Nokia (NOK) before it, RIM is about to enter the trauma room due to the nearly impossible competition with the successful Apple, and it is not clear when and how RIM will get out.
The company has lost so much of investors� confidence that for the first time I see the phenomenon that all the analysts, including those who have a �Buy� rating on the stock, are chuckling at the guidance that the company issued with its results for profit of $7.50 per share this year.
If the company meets that guidance, it means that the share is trading today at an earnings multiple of around 7 for a smartphone company. To me, it seems much too simplistic on the part of those analysts who erred so greatly with their positive recommendations on Nokia in its first two years of competition against Apple. Now, in my opinion, they are making a mistake again by moving the troubles at Nokia and the mistakes of its previous management directly to RIM.
Blackberry devices, which until the arrival of the iPhones were the default option for businesspeople in North America and Europe, today are actually a favorite in emerging markets - 52% of sales in the most recent quarter, compared with 36% in the corresponding quarter. It turns out that among other things, the unique message platform on the Blackberry, in addition to its physical keypad, made it into a hit in many emerging markets, primarily South America, where subscribers go crazy with intensive SMS communication, in lieu of expensive voice conversations.
Analysts view the turnabout in the geographic diversification of sales of RIM toward Asia and South America as a negative, because the gross profit on the cheap devices sold in those countries is low. But growth in those countries is considerably higher than developed countries, and so the quality of life is expected to improve considerably. That is, the world's baby boomers are coming from China, India, and Brazil. So I actually think that RIM will benefit from selling more expensive smartphones to those "captive" customers in those same countries in the coming years, which will lead to a significant improvement in its future results.
I am taking advantage of the cash in my portfolio tracked at "Globes" and adding RIM, at a time when negative sentiment about it is breaking records. In my opinion the company will turn around ahead of the release of its first tablet computer-- the PlayBook-- next month, and when its new smartphones arrive in the summer.