Research in Motion (RIMM): Possible buying opportunity
4/11/07: Research in Motion (RIMM), the company behind the BlackBerry device is currently down almost $10 per share (~7%) in after hours trading. The reason for the sell off appears to be three fold. While the profit was stellar (up 66% from prior year), the company actually failed to meet analyst expectation by a penny a share (reporting .99 versus the expected $1 per share). The future guidance was also weaker than most analyst have expected. Although the company did sign up over a million new subscribers during the quarter, this was not enough. Adding to the negative news, the company also confirmed the SEC is officially probing the company’s stock options practices.
We have been watching RIMM for awhile now, but always felt the stock was priced for perfection. We are viewing this negative news as an opportunity to buy on weakness. The long term prospect of RIMM is not in question here; this stock is a victim of its own success. Investors of RIMM have been accustomed to seeing blowout numbers and this stock usually runs up before earning. In our view, this correction is probably healthy as it allows new money that has been on the sidelines to flow in.
Fundamentally the company is still solid. Any company that is able to grow the top line by almost 100% and bottom line by 66% is impressive. While the growth rate might not be as it was moving forward, we believed the overall demand remains. If RIMM continues to innovate and it has been, we believed the Blackberry will continue to dominate this space. Although competition such as the Apple iPhone is on the horizon, we believed RIMM should be able to hold its own. Personally, we’re not playing on dumping our BlackBerry and spend $500 for an iPhone.
In respect to the stock option probe by the SEC, we are not at all concern. It is simply a distraction. As with a lot of technology companies, the SEC probing into prior stock option practices is becoming the norm. The stock will usually take a short term hit on this news, but should recover as investors will eventually realize any wrongdoing (if found) is in the past.
We are hoping this negative news will take RIMM down a few notch so we can buy at a decent price. Our target entry price is $130 per share. If able to acquire at $130 per share, we believed the risk/reward would be compelling.